chapter  1
16 Pages

Regional policy in a globalized economy


Introduction Economic policy intervention in general and regional economic policy intervention in particular can be justified by two sets of arguments: an efficiency argument and an equity argument (Richardson 1978; Fürst et al. 1976; Armstrong and Taylor 1993). The efficiency argument is usually rooted in the notion of market failure and the need for policy to correct for it. In the case of substantial externalities, transaction costs or other major barriers to free trade and free resource allocation, it is the aim of policy to remove these barriers to allow market forces to allocate resources more efficiently. Rooted in the belief that market forces (when they can operate uninhibitedly) lead to an efficient allocation of resources, such a policy is expected to lead to higher efficiency of resource allocation and, consequently, higher welfare, since formerly underutilized resources are now used in an optimal way.