The Economic Compass Points Back to the Core

Should policymakers focus on urban core centers as keys to economic growth or seek greater economic equity in the less developed periphery? A new study on regional policy and economic geography suggest policies should be directed toward core growth.

In New Economic Geography, Empirics, and Regional Policy, the authors examine historic development patterns in Europe and test a new geographic model with time series data. Authors Steven Brakman, Harry Garretsen, Joeri Gorter, Albert van der Horst, and Marc Schramm conclude that economic activity quickly balances in favor of existing central clusters regardless of policies. In fact, policies focused on building regional infrastructure, as a way to pull commerce into less developed regions, often results in drawing activity back to core areas over time.

The study highlights the following policy-related conclusions:

* Greater economic concentrations within a core cluster enhance overall productivity of a region; however, the core experiences disproportionately more growth than the outlying regions.

* Core clusters account for a disproportionate amount of innovation, as measured by patents.

* Cores have a better chance of holding on to economic activity, particularly in an increasingly mobile market.

* Large infrastructure projects do not always disperse economic activity. At a certain point, greater access to peripheral regions pulls economic activity back to the core.

* Policy makers addressing regional wage disparity should target workers in outlying regions, given the general immobility of labor.

The authors also examine industries and found that once established, these industries tend to remain in existing centers over long stretches of time. The data also indicate that the overall concentration of industries in Europe has fallen in relation to services.

Policymakers must navigate between their concerns about equity and their desire for growth. The authors note that efforts to boost competitiveness of lagging regions usually fail to counter the circular, magnetic pull of core clusters. If you favor growth. steer your policies towards existing urban cores.

New Economic Geography, Empirics, and Regional Policy is available at: http://d.repec.org/n?u=RePEc:cpb:spcial:56&r=all

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