This article presents a simplified model for comparison of the spatial distribution (core—periphery) of economic activity resulting from free market conditions, with the distribution that would lead to a social optimum. It further examines the public policy measures required to lead the economy towards the optimal distribution. Simulations are conducted to illustrate the mechanism of intervention of public policy and to test the feasibility of various measures. An important conclusion is that public investment in the creation of competitive ability in the periphery may provide the solution to market failure and therefore lead to the achievement of a social optimum greater than the free market optimum. Another preliminary conclusion is that public policy should consider a combination of measures (such as improving both regional infrastructure and the quality of the labour force), since focusing on a single measure may not be sufficient to achieve a social optimum.
Get full access to this article
View all access options for this article.
References
1.
Arnott, R.J. ( 1979) Unpriced transport congestion, Journal of Economic Theory, 21(2), pp. 294-216.
2.
Baldwin, R.E. and Forslid, R. ( 2000) The core- periphery model and endogenous growth: stabilizing and destabilizing integration, Economica, 67, pp. 307-324.
3.
Bar-El , R. (2001) Infrastructure investment and regional underdevelopment, in: D. Felsenstein, R. McQuaid , P. McCann and D. Shefer (Eds) Public Investment and Regional Economic Development, pp. 194-209. Williston, VT: Edward Elgar Publishers,
4.
Bar-El, R. and Benhayoun, G. ( 2000) Convergence, divergence and non efficiency of public infrastructure spatial allocation, Region and Development, 12, pp. 167-181.
5.
Bar-El, R. and Felsenstein, D. ( 1990) Entrepreneurship and rural industrialization: comparing urban and rural patterns of locational choice in Israel, World Development, 18(2), pp. 257-267.
6.
Bar-El, R. and Parr, J. ( 2003) Over-reliance on the core-periphery model? The case of Israel, Environment and Planning C, 21(3), pp. 353-369.
7.
Bar-El, R. and Schwartz, D. ( 2006) Regional development as a policy for growth with equity: the state of Ceara (Brazil) as a model, Progress in Planning , 65(3), pp. 125-200.
8.
Begg, I. ( 2002) ‘Investability’: the key to competitive regions and cities?, Regional Studies, 36(2), pp. 187-200.
9.
Borck, R. and Pflüger, M. ( 2005) Agglomeration and tax competition, European Economic Review, 50, pp. 647-668.
10.
Catin, M. ( 1991) Economies d’agglomeration et gains de productivité , Revue d’Economie Regionale et Urbaine, 5, pp. 567-598.
11.
Charlot, S., Gaigné, C., Robert-Nicoud, F. and Thisse, J.-F. ( 2006) Agglomeration and welfare: the core-periphery model in the light of Bentham, Kaldor, and Rawls, Journal of Public Economics, 90, pp. 325-347.
12.
Ciccone, A. and Hall, R.E. ( 1996) Productivity and the density of economic activity, American Economic Review, 86, pp. 54-70.
13.
Conrad, K. ( 1997) Traffic, transportation, infrastructure and externalities: a theoretical framework for a CGE analysis, The Annals of Regional Science, 31(4), pp. 369-389.
14.
Copus, A.K. ( 2001) From core-periphery to polycentric development: concepts and spatial and aspatial peripherality, European Planning Studies, 9(4), pp. 539-552.
15.
Davis, D.R. and Weinstein, D.E. ( 1999) Economic geography and regional production structure: an empirical investigation, European Economic Review, 43(2), pp. 379-407.
16.
Dohse, D. ( 1998) Infrastructure provision and locational efficiency in a federation: a numerical approach, Papers in Regional Science , 77(3), pp. 241-263.
17.
Fishman, A. and Simhon, A. ( 2002) The division of labor, inequality and growth, Journal of Economic Growth, 7(2), pp. 117-136.
18.
Forslid, R. ( 1999) Agglomeration with human and physical capital: an analytically solvable case. Discussion Paper No. 2102, Centre for Economic Policy Research, London School of Economics.
19.
Fujita, M. and Abdel-Rahman, H.M. ( 1993) Specialization and diversification in a system of cities , Journal of Urban Economics, 33(2), pp. 189-122.
20.
Goldstein, G.S. and Gronberg, T.J. ( 1986) Economies of scope and economies of agglomeration, Journal of Urban Economics, 16(1), pp. 91-104.
21.
Helsley, R.W. and Strange, W.C. ( 1990) Matching and agglomeration economies in a system of cities , Regional Science and Urban Economics, 20(2), pp. 189-212.
22.
Henderson, V.G. ( 1983) Industrial bases and city sizes, American Economic Review, 73(2), pp. 164-168.
23.
Henderson, V.G. ( 1986) Efficiency of resource usage and city size, Journal of Urban Economics, 19(1), pp. 47-70.
24.
Hodgkinson, A.N.C. and Pomfret, S. ( 2001) The determination of location in New South Wales, Regional Studies, 35(1), pp. 39-55.
25.
Hu, D. ( 2002) Trade, rural-urban migration, and regional income disparity in developing countries: a spatial general equilibrium model inspired by the case of China, Regional Science and Urban Economics, 32(3), pp. 311-338.
26.
Illeris, S. ( 1993) An inductive theory of regional development, Papers in Regional Science, 72(2), pp. 113-134.
27.
Isard, W. ( 1956) Location and Space Economy. Cambridge, MA: The MIT Press.
28.
Knarvik, K.H.M. ( 2004) Regional policy design: an analysis of relocation, efficiency and equity. Discussion Paper No. 4321, Centre for Economic Policy Research, London School of Economics.
29.
Krugman, P. ( 1991) Increasing returns and economic geography, Journal of Political Economy, 3, pp. 483-499.
30.
Krugman, P. ( 1999) The role of geography in development, International Regional Science Review, 22(2), pp. 142-161.
31.
Lanaspa, L.F. and Sanz, F. ( 1999) Krugman’s core- periphery model with heterogeneous quality of land, Urban Studies, 36(3), pp. 499-507.
32.
Lanaspa, L.F., Pueyo, F. and Sanz, F. ( 2001a) Multiple equilibria, stability, and asymmetries in Krugman’s core-periphery model, Papers in Regional Science, 80(4), pp. 425-438.
33.
Lanaspa, L.F., Pueyo, F. and Sanz, F. ( 2001b) The public sector and core-periphery models, Urban Studies, 38(10), pp. 1639-1649.
34.
Mano, Y. and Otsuka, K. ( 2000) Agglomeration economies and geographical concentration of industries: a case study of manufacturing sectors in postwar Japan, Journal of the Japanese and International Economies, 14(3), pp. 189-203.
35.
Mera, K. ( 1973) On the urban agglomeration and economic efficiency, Economic Development and Cultural Change, 21(2), pp. 309-324.
36.
Mitra, A. ( 1999) Agglomeration economies as manifested in technical efficiency at the firm level, Journal of Urban Economics, 45(3), pp. 490-500.
37.
Nakamura, R. ( 1985) Agglomeration economies in urban manufacturing industries: a case of Japanese cities, Journal of Urban Economics, 17(1), pp. 108-124.
38.
Ottaviano, G.I.P. and Thisse, J.-F. ( 2001) On economic geography in economic theory: increasing returns and pecuniary externalities, Journal of Economic Geography , 1, pp. 153-179.
39.
Ottaviano, G.I.P. and Thisse, J.-F. ( 2002) Integration, agglomeration and the political economics of factor mobility, Journal of Public Economics, 83, pp. 429-456.
40.
Pines, D. ( 1996) Economic considerations regarding the population dispersion policy. Position Paper, The Economic Planning Authority , Jerusalem.
41.
Roberts, P.W. ( 1985) Mobile manufacturing firms: locational choice and some policy implications, Regional Studies, 19(5), pp. 475-481.
42.
Saaty, T.L. ( 1980) The Analytic Hierarchy Process. New York: McGraw-Hill.
43.
Segal, D. ( 1976) Are there returns to scale in city size?, Review of Economics and Statistics, 58(3), pp. 339-350.
44.
Taylor, J. ( 1993) An analysis of the factors determining the geographical distribution of Japanese manufacturing investment in the UK, 1984-89, Urban Studies, 30(7), pp. 1209-1224.
45.
Verhoef, E.T. ( 2000) The implementation of marginal external cost pricing in road transport: long run vs short run and first-best vs second-best, Papers in Regional Science, 79(3), pp. 307-332.
46.
Wong, C. ( 1998) Determining factors for local economic development: the perception of practitioners in the north west and eastern regions of the UK , Regional Studies, 32(8), pp. 707-720.
