Affiliation: Toronto Metropolitan University
Title: "Place-Based Policy for National Welfare"
A preliminary abstract:
We provide a novel rationale for national place-based policies based on imperfect competition in local labor markets, and analyze its implications for the spatial welfare effects of such policies. To do so, we develop a multi-region model where heterogeneous market power among firms in both labor and product markets distorts the allocations of resources within and across regions. Industrial productivities and their elasticity to regional density differ endogenously across regions, hinging on how efficiently each region's labor market allocates workers across firms. Solving the planner's problem, we show that place-based industrial policy can improve efficiency, and assess when and how efficiency-based policy interventions change the spatial distribution of living standards. To quantify the importance of our theoretical results, we study the effects on reallocation and welfare across space of place-based policies aimed at eliminating disparities between Western and Eastern Germany.