Week 1: Lectures 1 And 2 - Regional Policy Flashcards
(33 cards)
Explain the regional inequality that is present in the UK
- The UK is a London-Centric nation which is devastatingly unequal
- Inner London is the richest region in Northern Europe yet nine out the ten poorest regions are also in the UK
- The UK is the only country in the G7 group of leading economies where inequality has increased this century
What are the two economic theories that are used to explain regional differences in inequality?
- Neoclassical model/Solow model
- New economic geography models
State all the assumptions made by the Solow Model
1- There are two factors of production (labour and capital) to produce one output
2- Ideas and new technology influence affect the productivity of factors
3- The production function has constant returns to scale, both labour and capital have diminishing returns to scale
4- A constant proportion of income is saved and invested to generate new capital
5- There is constant depreciation of capital over time
6- Population grows over time
State the two main predictions made by the Solow Model
1- The capital-labour ratio and per capita income increases with the saving and productivity and it decreases with depreciation and population growth
2- In the long term, without technological progress the economy will converge to a ‘steady state’. An increase in the proportion of incomes that is saved cannot lead to a permanent increase in the rate of growth
As given by the Solow model, what is the relationship between an economy’s savings ratio and capital production/real income?
An economy/region with a higher savings ratio will have higher capital production and higher real income
What does the Solow model tell us if we augment it with human capital?
If the Solow model is augmented with human capital it tells us that:
- Investment rates in human capital is crucial for technological progress
What is the prediction made by the augmented Solow model?
If poor regions have similar savings rates of physical and human capital then income levels of poor regions will tend to catch up with or converge towards the income levels of rich regions, this process is known as conditional convergence
What are the conclusions made by the Solow model?
- Observed cross-region income and productivity differences should be explained by observed differences in savings and fertility
- Regional inequalities are either temporary (adjustments to liberalisation) or caused by institutional rigidities
- More integration and a free market system leads to more equality
- There is no need for government intervention
What is the relationship between geography and why regional economic differences persist?
- Location/geography matters when explaining why regional economic differences continue to persist
- Central regions may be at an advantage
What are agglomeration forces?
-Agglomeration forces refer to the incentive to concentrate production of a good close to its largest market
- This means that economies of scale are realized and transport costs are minimized
What do both agglomeration and dispersion forces lead to?
- Agglomeration forces lead to concentration and regional imbalances
- Dispersion forces lead to decentralization
What are the benefits of agglomeration forces?
- Increasing returns to scale which gives a firm greater efficiency as it moves from small to large scale operations
- Positive external economies: Eg. An airport will increase accessibility and benefit local firms
What are some types of regional imbalances that agglomeration forces lead to?
- Technological spill overs
- Labour market pooling
- Demand linkages
- Supply linkages
Explain what demand linkages are
1- If some industry moves to a big region
2- Expenditure shifts as workers spend incomes in the big region instead of in the small region
3- This affects the market sizes as the big market gets bigger and the small market gets smaller
4- This leads to production shifting as due to trade costs, firms prefer to locate in the big market so more industry moves to the big region
What are supply linkages?
1- If some industry moves to a big region
2- Production shifts as migrated firm’s output is now cheaper in the big region and dearer in the small region due to trade costs
3- This leads to cost shifting and so there is a wider range of locally available intermediate goods which makes the big region a cheaper place to produce
4- Some more firms now move from the small market to the big market as they are attracted by lower costs
How do dispersion forces lead to decentralization?
Dispersion forces cause:
- Congestion
- Higher rent and land prices
- Competition with other firms
Explain the idea of path dependence
- Path dependence refers to the idea that cities/regions that have an early advantage tend to hold onto their headstart
- An example of this is that in North America rivers are used to transport goods. This caused portage sites (places where boats unload to get around rapids) to grow into settlements which centuries later led cities near portages becoming very large
Explain how portage sites gave rise to nearby large cities
Portages were a focal point for commerce:
- Traders obliged to stop because of the natural obstacle to navigation; in turn, these sites offered easy opportunities
or exchange and commerce
Give a summary of the effect of economic integration on both prosperous and poor regions
Economic integration can intensify small initial differences between regions:
- Prosperous regions improve and become better and better as there are advantages for industries to cluster and high incomes attract new industries
- Poor regions decline and become worse and worse as they become subject to selective outmigration and low growth and investment
What are some reasons for government intervention?
- Equity grounds
- Political solidarity
- Economic self-interest
- Boost future national exports and investment
- Influence the recipient’s development priorities
What are some ways a government may intervene?
- Provision of physical capital (infrastructure etc.) in poorer areas
- Government support for R&D
- Provision of public education and training (human K)
- Income transfers
Why is there a common EU regional policy?
There is a common EU regional policy in order to:
- Coordinate member states’ assistance
- Encourage a critical mass of assistance/avoid free riding
- Influence recipient’s policy on a larger scale
- Political solidarity
Explain the EU regional policy is mainly used for and how funds are allocated
- The EU regional policy represents about 34% of the EU budget
- It is mainly used for national projects and is co-funded by the EU
- Funds are largely pre-allocated by country, poorest ones get the most
How has the EU regional policy been used to address concern for Europe’s disadvantaged regions?
- Concern for Europe’s disadvantaged regions has always been part of EU priorities
- Funding for less-favoured regions was introduced when Ireland joined in 1973
- The European Regional Development Fund (ERDF) redistribute money to the poorest regions
