Regional Distribution of Economic Activity

Abstract

Our starting point for discussing the regional distribution of economic activity within nations is the recognition that economists interested in the emergence and persistence of economic disparities between regions have drawn heavily on theories relevant for understanding international economic relations between countries. There are, of course, important differences between regions and sovereign nation states, but they are often differences of degree rather than kind. Critically important for a region is its openness and interdependence with other regions. This arises because of the generally greater importance of trade to the region compared with the nation but also because of its greater dependence on investment brought in from other regions. Regions within a nation also share a common currency and this removes the possibility of currency adjustments. Inevitably this puts more weight on internal price flexibility and factor mobility between regions as means by which regions adjust to economic circumstances than is the case with nations. The mobility of labour and capital is greater between regions than countries and as we shall see this has been a major route by which regions adjust to change.