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Regional Economic DevelopmentOffice:Room 9320School of International Economic EducationOffice hours:Monday 10:30-12:00Wednesday 10:30-12:00Office:Room 9320LESSON 1LESSON 1WHAT IS A REGION?WHAT IS A REGION?WHAT IS REGIONAL DEVELOPMENT?WHAT IS REGIONAL DEVELOPMENT?A region can be sub-national,i.e.,part of a country or it can be supra-national,a combination of countries.An example of the latter is when we talk about the region of South-East Asia.An example of the former is when we talk about the western provinces of China.A region can be sub-national,For this course,we will be concerned with sub-national regions,i.e.,parts of a country.More particularly,we will be concerned with economic disparities between regions of a country.For this course,we will be coRegional disparities refer to the fact that when a country grows,not all parts of the country may grow equally.This means that,over time,a gap may open up between regions.This gap may be in income,employment,social development,or all of these.Income disparities are what we will be mainly concerned with but usually,when a region lags behind in income,it will also lag in many,perhaps most,other areas as well.Regional disparities refer to Regional development refers to the economic development of a region.Our emphasis will be focused on less developed regions,or what sometimes are simply referred to as poor regions.And how they can be developed so that they catch up with the more developed or rich regions of a country.Regional development refers toIn the most general sense,regional development is about facilitating/creating development in different parts of a country.But our concern will specifically focus on poor regions and how they can be made to“catch-up”to the national average in development.This means that we want to look at why differences exist in the first place and what can be done about it in the second place.In the most general sense,regThere is a difference between Asking how to encourage development in a region Asking how to make all regions equal in terms of development andAsking how to narrow the gap in income and other indicators between regions.There is a difference between None of these will necessarily involve the same targets and/or programs for achieving those targets.Another major question in this regard that needs to be addressed is whether a goal of at least narrowing the gap between regions,if not making them equal,requires government involvement.None of these will necessarilyOne school of thought argues that the market will not create equality across regions and therefore,government intervention is required if this result is to be achieved.An alternative view is that government intervention prevents the market adjustment mechanism from working and thus interferes with solving the problem rather than providing a solution.One school of thought argues tIn many respects,the issue of regional development is comparable to the issue of international development.The former is concerned with how to encourage development in less developed regions of a country and narrow the gap in economic well-being between regions while the latter is concerned with the same questions but at the country level.In many respects,the issue ofBut there is a significant difference between the case of regions within a country and whole countries and this has to do with the mobility of factors of production.But there is a significant difAt the country level,there may be barriers to mobility of both capital and labour.Capital in todays world has become much more mobile than was the case,say,50 years ago or even twenty years ago.But there are still restrictions in many countries on the flow of financial capital in and out of a country.At the country level,there maBut more significantly,there are major restrictions on the mobility of labour between countries.Most countries have strict immigration laws that control the movement of workers across borders.But more significantly,there What is different in the regional case,is that because we are dealing with regions inside a country,labour and capital are free to move anywhere in the country at the discretion of the individual worker or owner of capital.Which brings us back to the issue of how markets adjust and what government involvement in regional development should encompass.What is different in the regioSuppose we have two regions,A and B.Assume A is a high-wage,high-income region and B is a low-wage,low-income region.If labour is free to move from B to A,then the relatively higher wage in A will cause workers to move to A and leave B.Suppose we have two regions,AWhen this happens,the supply of workers in A will rise and the supply of workers in B will fall.When the supply of workers goes up,all other things equal,the wage rate paid to workers will fall.And when the supply goes down,the wage rate will rise.When this happens,the supply So when workers move from B to A,all other things equal,the wage rate in A should go down and the wage rate in B should go up.WA WB before migrationWA falls and WB rises with migrationWhen WA=WB,migration stopsSo when workers move from B toIn this type of perfectly functioning market,income/worker converges across regions and regional disparities will be eliminated.In this case,government interference will impede the adjustment of markets and cause the problem of regional disparities to be perpetuated.In this type of perfectly funcIn practice,this market adjustment mechanism does not work as the theory predicts,at least not to the point where disparities are eliminated.Why not?In practice,this market adjusNot all workers are the same.Workers in B may not have the skills required for jobs in A.Some people may not want to move for personal or non-economic reasons.Government rules and programs may reduce incentives to move or increase incentives to stay.Workers in the high wage region will not support equalization if this means their wages will fall.Markets are not perfect.Not all workers are the same.Capital markets inside a country should behave in a similar manner but often do not.In other words,it may be difficult to get capital to move to poorer regions even though returns to capital may be higher there because capital is relatively scarce.If returns are higher,capital should move to less developed regions and the new investment this creates will in turn help to develop the poor region.But this does not happen much of the time.Capital markets inside a countIf the market adjustment mechanism worked as the theory says it will,there would be no problem of regional disparities.Because the adjustment does not work perfectly,the problem of regional disparities does exist.If the market adjustment mechaAre we only concerned with differences in regional income?Not necessarily.Are we only concerned with difDevelopment may be about more than growth of income.Basically,development means improving the well-being of people/citizens.So regional development is about improving the well-being of people in a particular region.Development may be about more Well-being includes income but it may also include many other things that people deem to be important to the quality of their lives.This may include things likeHealthEducationEnvironment.Well-being includes income butIt may also include Social valuesCultural valuesPolitical considerations.So well-being is not just about material goods and services and income it is not just about economics.It may also include But having said this,Income clearly does matterAndIncome may matter more than anything else or matter to more peopleBut having said this,The question of regional disparities has become very important in China as economic growth of the overall economy has occurred in the last 30 years.Specifically,most of Chinas growth has occurred in the coastal provinces and although there has been some growth in all parts of the country,relatively more growth has taken place in the coastal provinces than in the interior and far western provinces.The question of regional dispaWe will move on at this point to examine a report on the Chinese economy that came out approximately a year ago so that we have a firmer idea of the context for our subsequent discussion of regional disparities and regional development in a Chinese context.We will move on at this point
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