Faculty of Economics and Business Administration Publications Database

Long-Run Effects of Regional Policy in an Economic Union

Volume: 30
Number: 2
Pages: 165 - 183
Month: June
ISSN-Print: 0570-1864
Link External Source: Online Version
Year: 1996
Keywords: Regional economics; International economic integration
Abstract: Regional policy in economic unions (e.g. in the European Union) is usually conducted with the objective of overcoming regional disparities. By developing a two-regional growth model with endogenous technological change, we address the long-term implications of regional policy measures. We show that regional policies aiming to support the less-developed region do not only change the location of production between the regions but also affect the overall growth performance of the union. By altering the incentive to accumulate knowledge capital, regional policies influence the steady-state growth rate. Our analysis shows that a potential trade-off between regional equity and dynamic efficiency exists.