Growth Effects of Spatial Redistribution Policies

37 Pages Posted: 31 Jan 2007 Last revised: 10 Jun 2009

Calin Arcalean

ESADE Ramon Llull University - Department of Economics

Gerhard Glomm

Indiana University Bloomington - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Ioana C. Schiopu

ESADE Ramon Llull University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 2009

Abstract

Regional income disparities have increased in many European countries during the last three decades, even as national and supra-national policy instruments were created to correct them. To explain these evolutions, we develop a two-region, two-sector model with migration and public investment in infrastructure and education. Accumulation and creation of new ideas and technologies are at the core of differential regional growth. Together with regional migration, these forces are also responsible for diverging industrial structures, with the lagging region also falling behind in innovation. In this framework, we assess the effectiveness of structural funds, modelled on the EU policy. In a numerical example calibrated to Portugal, we find that, to diminish the initial gap in income per capita, the backward region needs to receive around 9% of its own GDP in structural funds, while the actual disbursements were around 4%. We also find that maximizing innovation in the backward region conflicts in the short run with the goal of maximizing its income per capita. Moreover, the rich region has an incentive to bias the allocation of structural funds towards human capital formation.

Keywords: two-region economy, structural change, migration, regional policy, European Union

JEL Classification: O, H7, R58, R12

Suggested Citation

Arcalean, Calin and Glomm, Gerhard and Schiopu, Ioana C., Growth Effects of Spatial Redistribution Policies (May 2009). CAEPR Working Paper No. 2007-002. Available at SSRN: https://ssrn.com/abstract=960475 or http://dx.doi.org/10.2139/ssrn.960475

Calin Arcalean (Contact Author)

ESADE Ramon Llull University - Department of Economics ( email )

Av. de Pedralbes, 60-62
Barcelona, 08034
Spain

Gerhard Glomm

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States
812-855-7256 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Ioana C. Schiopu

ESADE Ramon Llull University - Department of Economics ( email )

Av. de Pedralbes, 60-62
Barcelona, 08034
Spain

HOME PAGE: http://profesores.esade.edu/ioanaschiopu

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