Abstract
We discuss regional disparities in economic performance and living standards. We first set out some key facts, and provide a conceptual framework to help analyze whether such disparities are efficient, or instead reflect market and/or policy failures. We examine whether policy attempts to reduce regional disparities necessarily involve a trade-off between equity and efficiency. We then investigate whether policymakers should focus on boosting the economic performance of lagging regions-or, conversely, accept the presence of regional disparities, and instead assist households in lagging regions through transfer payments, investments in education, health, and other basic services, and by facilitating out-migration.
Highlights
Many countries are characterized by significant regional disparities in economic performance and living standards, as reflected in income, education, or health outcomes
Regional disparities may have harmful implications for economic efficiency, as limited opportunities for those stuck in the wrong place lead to the underutilization of potential and constrain overall growth
The rise in regional disparities appears to be associated with economic shocks and de-industrialization since the 1980s
Summary
Many countries are characterized by significant regional disparities in economic performance and living standards, as reflected in income, education, or health outcomes. These regional disparities raise equity concerns: they contribute to overall within-country inequality, and they are linked to inequality of opportunity, as measured by, say, intergenerational mobility.. Large and/or rising regional disparities may arise in different contexts In some cases they may be a normal feature of growth. Regional disparities may be a consequence of adverse economic shocks that have impacted particular regions Adjustment to these shocks can be very slow, giving rise to persistent disparities. It sets out a conceptual framework to interpret these facts and analyze the drivers of disparities, and concludes with a discussion of potential policy responses
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