Regional policy: rationale, foundations and measurement of effects

What is it about?

Since the 1930s generations of policy makers have developed and implemented regional policies for both economic (efficiency) and social (equity) reasons. As regards efficiency, regional disparities in, for instance, unemployment and per-capita income, often have negative effects on the efficient operation of the national and regional economy. Armstrong and Taylor (2000) give several arguments. The whole nation is better off when the unemployed in regions with high unemployment become employed whenever the possible losses of jobs in other regions are smaller. Other benefits are an increase in gross domestic product (GDP) at the national and regional levels and lower cost of social security. In addition, a more equal spread of economic activities may also reduce the negative cost of congestion, such as traffic jams and environmental damage in the more densely populated regions of a country (cf. Elhorst et al. 1999). Finally, smaller regional differences in unemployment may also reduce inflationary pressure. As regards equity, reducing interregional disparities may contribute to the general objective of reducing all kinds of unwanted inequality between individuals. In this respect, two classical dilemmas (Stilwell 1972) are still relevant.

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