Regional Policies and the Equity-efficiency Trade-off: Towards a Sequenced Timing of Cohesion Policy

Lackenbauer, Jörg and Meyer, Dietmar (2006) Regional Policies and the Equity-efficiency Trade-off: Towards a Sequenced Timing of Cohesion Policy. Acta Oeconomica, 56 (3). pp. 249-277. ISSN 0001-6373

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Abstract

As a result of the combination of endogenous growth theory with the approach of the new economic geography (NEG), several models have been developed to explain spatial income inequality and to formulate possible policy strategies taking into account the equity-efficiency trade-off. The dynamics of this problem should be considered as fundamentally important for the enlargement of the EU, because with respect to the new Member States from Central and Eastern Europe (CEECs), EU cohesion policy is confronted with a double challenge. To analyse this problem we develop a very simple dynamic version of Martin's model (1999) from which we derive some regional policy implications. We find that there is a case for a “two step regional policy approach” in order to tackle the equity-efficiency trade-off challenge: this approach first aims to support the richer region and thus aggregate growth in the whole integrated area, and then to pursue an equity-oriented cohesion policy by fostering firm creation and innovation in the poorer region. We question whether The Republic of Ireland could be a role model to follow in this context and whether cohesion policy should be based on national wealth instead of regional wealth.

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