The internationalisation of the economy and its effects on regional economic policies

• Main Author: Eich, Frank Egbert Oliver
• Published: London School of Economics and Political Science (University of London) 1998
• Subjects: 330; Industrial policy
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.298547

This thesis studies the effects of the internationalisation of the economy on various regional economic policies and is organised as follows: Chapter 1 provides a general introduction. Chapter 2 studies the effects of industrial policy on manufacturing firms' location decisions. Industrial policy provides a productive local public good, financed by locally-raised tax revenues. Building on the 'new economic geography' literature, two new, opposing agglomeration forces are described: first, taxation reduces the market size - making a region less attractive - second, production cost fall - making a region more attractive for firms. We analyse the conditions under which a less-developed region can attract industry from a more-developed region. Chapter 3 incorporates ideas of the 'new international trade' literature into a 'fiscal federalism' framework with local public goods. In a two-region model, local public goods are underprovided if they are productive in nature and financed by domestic tax revenues. The degree of underprovision depends on the volume of trade between the two regions. This result arises as the benefit of provision has to be shared with the other region's citizens whereas the cost of provision falls entirely on the local citizens. Finally we show that delegating tax policies to a supra-regional body solves this problem. Chapter 4 analyses zoning policies on an urban level. We show that welfare under zoning is higher than in the market equilibrium if residents and monopolistically-competitive firms compete for land in a fixed-sized city with one central business district (CBD). Assuming an additional out-of-town business district (SBD), we find that the optimal size of the CBD depends crucially on whether the SBD is developed by the citizens or by an absentee land-developer: in the latter case the CBD should be expanded to minimise the outflow of rental income. Chapter 5 concludes.