Tan Y. When spatial equilibrium fails: is place-based policy second best, Regional Studies. Place-based or geographically targeted policy often is promoted to help poor regions. Based on the spatial equilibrium model, economists routinely argue that place-based policies are distortionary and only slow the needed economic adjustments. This paper reviews the empirical evidence about whether the spatial equilibrium model holds in reality and finds that, even in the United States where labour mobility is thought to be much higher than in Europe, at best weak support for the spatial equilibrium hypothesis is found. Although this suggests potential efficacy of place-based policy, the informational and political economy conditions required for place-based policy to be effective are described.
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