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2011•Strathprints: The University of Strathclyde institutional repository (University of Strathclyde)Open access

Regional Policy Spillovers: The National Impact of Demand-Side Policy in an Interregional Model of the UK Economy

Michelle Gilmartin, David Learmonth, Peter McGregor, John Swales, Karen Turner

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Abstract

UK regional policy has been advocated as a means of reducing regional disparities and stimulating national growth. However, there is limited understanding of the interregional and national effects of such a policy. This paper uses an interregional computable general equilibrium model to identify the national impact of a policy-induced regional demand shock under alternative labour market closures. Our simulation results suggest that regional policy operating solely on the demand side has significant national impacts. Furthermore, the effects on the nontarget region are particularly sensitive to the treatment of the regional labour market. Keywords: regional CGE modelling, migration, regional development policy

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UK regional policy has been advocated as a means of reducing regional disparities and stimulating national growth. However, there is limited understanding of the interregional and national effects of such a policy. This paper uses an interregional computable general equilibrium model to identify the national impact of a policy-induced regional demand shock under alternative labour market closures. Our simulation results suggest that regional policy operating solely on the demand side has significant national impacts. Furthermore, the effects on the nontarget region are particularly sensitive to the treatment of the regional labour market. Keywords: regional CGE modelling, migration, regional development policy

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Available abstract

UK regional policy has been advocated as a means of reducing regional disparities and stimulating national growth. However, there is limited understanding of the interregional and national effects of such a policy. This paper uses an interregional computable general equilibrium model to identify the national impact of a policy-induced regional demand shock under alternative labour market closures. Our simulation results suggest that regional policy operating solely on the demand side has significant national impacts. Furthermore, the effects on the nontarget region are particularly sensitive to the treatment of the regional labour market. Keywords: regional CGE modelling, migration, regional development policy

Key concepts: Computable general equilibrium, Shock (circulatory), Economics, Regional policy, Shift-share analysis, Demand shock, Demand side, Macroeconomics

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