Spatial Keynesian policy and the decline of regional income convergence in the USA

Abstract

Abstract US regional development policy in the early twentieth century was characterised by a centralised, national effort to reallocate economic activity from capacity-constrained regions to those with excess capacity. In the late twentieth century, the USA gradually abandoned its policy of spatial Keynesianism in favour of a decentralised process of regional competition whereby state and local governments superseded the federal government as the loci of a policy agenda focussed on cost competitiveness. This shift was accompanied by a decline in regional income convergence in the USA. The regional competition model of development policy facilitated the decline in convergence in several ways, including: (1) the creation of coordination failures, which (A) make it difficult to implement redistributive policy within regions and (B) contribute to the existence of excess capacity in the aggregate, (2) introducing cost-related inefficiencies and (3) forgoing the opportunity to replicate previously successful spatial Keynesian policies.