Abstract

This chapter addresses the economics of regional disparities and transport policies in the European Union, offering an explanation for the uneven development of regions. We show that recent developments in spatial economics highlight the fact that trade is costly and location still matters. Since the drop in transport costs and the emergence of a knowledge-based economy, the proximity to natural resources has been replaced by new drivers of regional growth that rely on human capital and cognitive skills. Regions with a high market potential – those where demand is high and transport costs low – are likely to attract more firms and pay higher wages, which leads to sizable and lasting regional disparities. As a consequence, investments in interregional transport policies may not deliver their expected effects. In addition, new information and communication devices foster the fragmentation of the supply chain and the decentralization of activities.

Introduction

This chapter addresses the economics of regional disparities and regional policies in the European Union (EU). The fundamental challenge is to explain the uneven development of regions in both the EU and within EU member states. The purpose is not to delve into concrete regional policies and judge their results but rather to understand the main drivers of contemporary regional development. Earlier explanations evolved around natural resources and transport systems. But since the emergence of a knowledge-based economy, traditional location factors have been replaced with new drivers of regional growth that rely on human capital and cognitive skills. This chapter is organized in seven sections. In the second one, we focus on the concepts and tools of spatial economics that are necessary as a backdrop to regional economics. In the third section, we analyse the main forces driving the allocation of economic activity across regions: firms’ market access and labour mobility. The fourth section examines these two forces to see whether they generate over or under-agglomeration. The fifth section is devoted to the effects of investments in interregional transport policies, while the sixth section briefly analyses current interregional transport policies. The seventh section concludes.