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This book introduces the reader to local development economics and policy, with a special focus on the place-based paradigm that covers its justification, its difficulties and the types of public intervention that it suggests. The starting point for the analysis is that economic development in lagging places is not to be expected as the result of a mechanism of automatic convergence between backward and advanced regions and that, therefore, the most appropriate development policy is not to maximize competition among all agents in all sectors and places. The failure of the Washington Consensus is examined, and the two competing positions to have emerged from this failure – spatially blind interventions and place-based policies – are contrasted. The main shortcoming of spatially blind policies, namely that immobile resources that could trigger or support a development process often remain untapped or “trapped”, is emphasized. The limitations of the “big push” state intervention and wage flexibility solutions to this trap are analyzed and the merits of place-based policies that support intervention and can deal with uncertainty, risk and conflict are discussed.

Inhaltsverzeichnis

Frontmatter

Chapter 1. Spatially-Blind Versus Place-Based Policies

Abstract
In this chapter we start observing that the Washington Consensus doctrine has failed to provide a general recipe for economic development. Major economic improvements took place where the requirements for fiscal austerity, privatization, and market liberalization were not met. Where this recipe was applied, very little progress was recorded, while serious imbalances occurred. The current view that a more “humble” search for paths to development is needed has replaced the claim that best practices can be applied anywhere. The failure of the Washington Consensus gave a notable boost to a spatial perspective. If there are no general recipes, then opportunities and constraints must be considered on a case by case basis. Dealing with development policies, therefore, involves dealing with regional policies. In the central part of this chapter we review an unresolved debate in this field. Is it better to invest in people regardless of where they live, or should we support the development of places to help people more effectively? Should all regions grow simultaneously or could just a few drag the others? Is the goal of developing backward regions unnecessary or unattainable? A debate is emerging between people-based (spatially blind) policies and place-based policies. The World Bank supports spatially-blind policies, while European Cohesion Programs are conceived as place-based interventions. In the last part of this chapter, we review the 2014 European Cohesion Policy reform and outline its merits and weaknesses.
Gilberto Seravalli

Chapter 2. The Spatial Perspective

Abstract
In this chapter, we start showing that development processes are spatially uneven. In advanced regions there are factors that lead to increasing returns: economies of specialization, economies of scale, and external economies. Opening markets might thus bring about regional divergence as a result of a cumulative inflow of mobile resources to the more advanced regions. We then observe that in lagging regions there may be, however, untapped immobile resources, and their valorization justifies place-based policies. Current profitability may be in favor of a certain spatial distribution of activities, but potential profitability may be in favor of a different distribution. The possible movements that may arise will depend on the formation of ex ante expectations. It is therefore reasonable to think that intentional actions such as place-base policies—supporting the best exploitation of untapped, immobile resources where they exist—are justified and may produce significant results. We will lastly examine whether and how realistic it is to assume that these resources are untapped, taking into account a strong objection: if resources are available, they will be spontaneously exploited in a market capitalism system.
Gilberto Seravalli

Chapter 3. Institutions, Agency and Path Dependency

Abstract
Taking cues from the most recent debate in the field of economic geography, we will see in this chapter that local resources can remain untapped because of the consolidation of routines and narratives that are against change even when it improves everyone’s situation. We will also see that changing narratives and changing private actors’ routines in order to use local untapped resources is possible if identified obstacles—mainly the lack of mutual experience between actors of innovation—are overcome. The experience of change, which would support both a change of routines and a change of narratives, is apparently possible only as a result of previous experience. This is a trap. The chapter starts, however, by discussing an apparently powerful way of avoiding any trap: if mobile resources tend to abandon lagging regions, building industrial districts and/or cluster could be as making immobile local resources that are normally mobile.
Gilberto Seravalli

Chapter 4. Under Valorized Areas

Abstract
A region or a city, with local specific resources that are untapped or badly employed, would have potential for development if interaction between agents and institutions were able to bring about appropriate intentional actions. This condition is very hard to fulfill. Even if some actors are oriented towards change, they must exit the circular causation mechanism, where everybody waits for someone else to make the first move. In this chapter we will see a simple representation of the trap. The experience of change can be considered as a condition for changing routines at the level of individual private actors and changing narratives at the level of interaction between actors and institutions. We can therefore simplify by describing persistence and change in the allocation of resources as dependent on decisions of firms that are affected by the experience of other firms. We will also discuss two obvious but ineffective ways of getting out of it: the “big push” and the drop of wages.
Gilberto Seravalli

Chapter 5. Dealing with Uncertainty

Abstract
In this chapter we will see that, when uncertainty arises from lack of information about both the state of the world and the agents’ behavior, a remedy to a lack of experience cannot be bought. We will introduce, then, a more complex trap model assuming that innovation (a way out of the trap) can occur through a process that is unsure and made up of small steps, by way of experiment. Some indications emerge regarding the policy design required to get out of the trap of under-valorized local resources. Intervention should not entail direct public involvement in starting and managing productive activities, nor should it entail providing boundless grants and incentives to private agents. Wage reduction is not a good approach neither. Intervention should be designed with the goal of increasing the difference between the net return of new risky activities and the safe return of traditional ones. The ability to choose the most promising project, however, is not very realistic. The outcome of any new project is uncertain. If this were not the case, there would be no traps to deal with. This leads to the use of cost as a lever rather than selection. Policy makers should provide public goods and services selected from those best able with certainty to reduce costs to those actors who are engaging in new activities.
Gilberto Seravalli
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