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The Pitfalls of Regional Education Policy

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  • Jens Südekum

Abstract

We analyze whether education subsidies to students in poor areas are an effective tool of regional policy. We show that this policy can miss its objectives and actually hurt instead of help the recipient area. The reason is that geographical mobility increases with the personal skill level. Education subsidies induce individuals to invest more heavily in human capital. At the end of the education period they might have crossed some threshold level of qualification beyond which emigration to the economic center pays off. Regional policies then result in a brain drain that is harmful to those remaining in the periphery. Education subsidies are a more promising policy instrument the lower is labor mobility and the better is access to financial markets. Moreover, policymakers can avoid the potential pitfalls of this policy by focusing subsidies on low-skilled workers.

Suggested Citation

  • Jens Südekum, 2005. "The Pitfalls of Regional Education Policy," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(3), pages 327-352, November.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200511)61:3_327:tporep_2.0.tx_2-l
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    More about this item

    Keywords

    regional policy; education subsidies; human capital; labor mobility;
    All these keywords.

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics

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