DP4630 Regional Policy, Integration and the Location of Industry in a Multiregion Framework

Author(s): Rikard Forslid
Publication Date: September 2004
Keyword(s): agglomeration, multiregion-model, new economic geography, regional policy
JEL(s): F12, F15, F21, R12
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4630

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.