Regional Competition in the European Union

In the last decade, regional issues have gradually moved into the centre-stage of the debate on economic integration and international trade in Europe. The fading influence of the nation-state goes together with a transfer of sovereignty to the European level combined with a renewed interest in the region as a relevant economic unit. Regional authorities are welcoming this evolution as a new opportunity for greater regional autonomy. They are developing political and economic ties with other regions but are at the same time promoting the strategic interests of their own region. This twofold strategy draws a hesitant response from European Union (EU) regulators. They applaud the fact that economic integration strengthens regional complementarities and co-operation. But the increased regional competition raises the prospect of a greater use of policies that distort competition in an integrated economic area. Moreover, EU regional policies that seek convergence between high and low income regions would suffer from a systematic policy of the stronger regions to expand their influence at the expense of the weaker regions. From a theoretical point of view, those issues raise several questions that are addressed in this paper. What are the driving forces for regional complementarities and regional competition? How does economic integration affect regional competition ? What can "strategic" regional policy do to promote narrowly defined regional interests ? And how do EU-wide policies prevent distortions in regional competition? This paper addresses those theoretical questions based on the literature in international trade, regional agglomeration and multinational companies. Section 1 starts with a look at theories that predict regional convergence as the outcome of the regional integration process. Section 2 assesses recent theoretical contributions that focus on regional agglomeration and explore the regional consequences of multinational companies. In a third section, the scope for EU policies that prevent destructive regional competition is discussed.