Working Paper: CEPR ID: DP4630
Authors: Rikard Forslid
Abstract: This Paper analyses the interaction of economic integration and some typical regional policies in a new economic geography model with three regions of different size. The policies analysed are when the government controls the location of industry through location permits, infrastructure investments, and subsidies to the establishment of industry. It is shown how regional policy can easily be misdirected. The existing literature almost entirely focuses on two-region cases. This Paper instead analytically analyses a three-region case with asymmetric regions. The introduction of a third region gives several new insights. In particular the locational consequences for the region of intermediate size can generally not be inferred from a two-region case.
Keywords: agglomeration; multiregion model; new economic geography; regional policy
JEL Codes: F12; F15; F21; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| government controls over industry location through permits and subsidies (R38) | industrial distribution (L81) |
| government controls over industry location through permits and subsidies (R38) | misdirection in regional policy (R50) |
| introduction of a third region alters expected outcomes (D80) | locational consequences for a region of intermediate size (R12) |