Edited by Hans Westlund and Kiyoshi Kobayashi
Chapter 9: Social capital and place-based policy: Aboriginal communities in Canada
Public policies targeting local or regional economies are typically the result of concerns regarding local outcomes that are lagging relative to a (national) reference point. Spatially uneven economic activity is explained, in neoclassical economics, by differences in natural advantages and factor endowments. However, other factors including notably local institutions have also been identified as being of major importance, especially in the context of developing countries (Acemoglu and Robinson 2008; Hall et al. 2010; North 2003). Over time, regional performance will change as a result of both external (demand for exports, new technologies) and internal (governance and institutions) factors. The New Economic Geography (NEG) that developed following early work by Krugman (1991) provided a framework for understanding the possible divergence of core and peripheral regions under conditions of imperfect competition, falling transportation costs, increasing returns to scale, and mobility of capital and labor (Krugman 1991; Fujita and Krugman 2004; Tabuchi et al. 2005). Market potential (demand) plays a very central role in this perspective and, in particular, the demand for variety. Further, strong path dependence may mean that regions with existing advantages are long term net recipients of labor and capital flows, perpetuating and enhancing their competitive advantage (Head and Mayer 2004).
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