This chapter presents the Type I, II and III demand-driven regional and interregional input–output (IO) models and their microeconomic foundations. It discusses why realistic multipliers probably lay somewhere halfway between the Type I and Type II multipliers and how they can be used in impact analyses. It continues with the presentation of the dual IO price model and how it can be used for cost-push wage/price inflation analysis. The theoretical part of the chapter ends with the micro foundation of the entirely implausible supply-driven IO model in which cars may drive without gas and factories may work without labour. Its dual price model is argued to be less implausible and suited for demand-pull price/wage inflation analysis. The second part of the chapter presents an overview of the development of IO data construction methods and commercial IO-based models used for regional and interregional impact analysis, especially in the USA.

This chapter starts with the two dilemmas that determine the rationale of regional policy: place prosperity versus people prosperity and interregional equity versus national efficiency. Second, it gives an overview of eight theories of regional development on which regional policy may be based: neoclassical growth, endogenous growth, post-Fordism, social capital, new economic geography, evolutionary geography, demand-driven export competition and learning regions. Thirdly, the choice of policy instruments is discussed, the most strategic being that between moving workers to the work versus moving work to the workers. Instruments to do the latter are either of a redistributive or endogenous growth type. Finally, this chapter evaluates micro and regional approaches to measure the impacts of regional policy instruments.