Regional Policy: An Alternative Approach

The regional policy problem is often conceived as a trade-off between aggregate efficiency and interregional equity. A policy to allocate investment across regions frequently causes a contradiction in the aims of regional policy, in the sense that it might lead to high rates of aggregate growth accompanied with an unequal distribution of income across regions. On the other hand, a policy to reduce regional inequalities may in fact be inefficient to promote growth of the economy as a whole. It is argued further that under certain conditions the contradiction between aims can be avoided