Regional Policy from a Supra-Regional Perspective

This paper introduces a new 2-country 4-region model in order to study the possible trade-offs arising between national efficiency and interregional equity, differentiating for different strengths of agglomeration economies and different regional productivities. In this static model the national policy maker can affect entrepreneurship through the set-up costs of firms. It is evidenced that, for countries composed of identical regions, spatially dispersed allocations of public productive expenditure are more efficient with low agglomeration economies whereas spatially concentrated allocations are more efficient with high agglomeration economies. As the regions become different, however, unbalanced allocations of public productive expenditure;towards the most advanced region become more efficient also in case of relatively weak agglomeration economies, until, for regions sufficiently different, the most efficient allocation of public productive expenditure is always to;concentrate it in the most advanced territories. For this reason, if some sort of lump-sum compensating mechanisms are available, short-sighted national policy makers, not taking into account long-run growth and factor mobility, can rationally decide to support the competitiveness of the already more-productive regions and transfer income to the lagging ones, a behaviour which is shown to have significant similarities with two real cases.