International Handbook on the Economics of Integration, Volume II
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International Handbook on the Economics of Integration, Volume II

Competition, Spatial Location of Economic Activity and Financial Issues

Edited by Miroslav N. Jovanović

With this Handbook, Miroslav Jovanović has provided readers with both an excellent stand-alone original reference book as well as an integral part of a comprehensive three-volume set. This introduction into a rich and expanding academic and practical world of international economic integration also provides a theoretical and analytical framework to the reader, presenting select analytical studies and encouraging further research.
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Chapter 10: Economic Integration, Regional Policy and the Location of Industry in a Multiregion Framework

Rikard Forslid


Rikard Forslid* 1 INTRODUCTION Many countries devote a non-neglible part of their national budget to regional policy. These policies aim at improving the economic conditions in regions where, for some reason, the conditions are substantially below the average of other regions in the country. In the typical case, the receiving regions are less densely populated peripheral regions with an eroding industrial base. Examples are abundant: Southern Italy (the so-called ‘mezzogiorno’ region) receives transfers from the highly industrialised northern Italy and, at the other end of Europe, northern Norway receives support from the southern industrial area. The direct support (various forms of subsidies) to farming, forestry and fishing in the case of Norway was about 1 per cent of GDP in the 2001 budget (Hagen et al., 2004). In some cases the figures may overstate the size of regional policy in the sense of some subsidies going to wealthy areas, but on the other hand it does not take into account various forms of indirect support to peripheral regions in terms of infrastructure investments, transfers via social security systems and so on. Regional policy also exists on a supranational level. For instance, a considerable part of the European Union (EU) budget is devoted to regional policy; 37 per cent of the budget for the year 2000 was allocated to structural/cohesion funds with the objective of reducing regional imbalances and promoting regional development; another 47 per cent was allocated to the CAP (common agricultural policy) which, by definition, is strongly biased in...

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