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Regional Disparity and Development Pols 322 Douglas Brown February 2008
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Theories of Regional Disparities and Development Three main theoretical approaches: Neo-marxist, theory of “underdevelopment” Neoclassical economics Institutional political science
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Neo-marxist theory Class-based analysis of society and politics Ownership and spatial concentration of wealth is important Structure of development versus underdevelopment: regions are “kept” undeveloped or underdeveloped International application, but also within a large country such as Canada Metropolitan-Hinterland a variant of this analysis
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Neoclassical Economics The market is (or should be) what determines development. Geographic and natural resource development help determine economic distribution of resources The free market will adjust labour and capital to promote optimal allocation of resources Economic integration and trade patterns important to consider More recently: human capital formation seen as important factor
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Institutional Theory Politics and the shape of institutions drive economic outcomes Policy factors shape the economy over time Market (and their rules) are themselves institutions. In a regionally diverse economy, some regions win, some lose, according to their political influence and input to institutions
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Actual Policy Solutions Employed in Canada to deal with regional disparities Constitutional Provisions Fiscal Federalism Direct Regional Development Spending Programs State Enterprises
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Constitutional Provisions Provinces have significant fiscal and legal power to shape their own economies (so-called “province-building”) Federal government uses its spending power to redistribute income from richer regions and individuals to poorer ones. Section 36, Constitution Act, 1982 provides general commitment to regional equality of opportunity, economic development to reduce disparities, and fiscal equalization.
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Fiscal Equalization A Federal government program to top-up the revenues of provinces with below-average fiscal capacity Formula based on a Representative Tax System of 27 tax types. Formula determines average potential (not actual) tax yield against a national standard. Based on revenue capacity, not expenditure need Importance to recipient provinces -- unconditional grants allow provinces autonomy to spend as they like
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Regional Development Programs All governments involved: both cooperative and competitive programs Types of spending: Public Infrastructure Grants and Loans to Business Sectoral strategies Political and Bureaucratic Factors
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State Enterprises Role in Historic Development: railways, canals, pipelines, airlines, telecommunications Nationalization of Private Business: uranium, potash, steel, hydroelectricity, shipbuilding Decline as a policy instrument: commercialization and privatization
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Current issues Is equalization sufficient to ensure similar national standards in programs? Are regional development programs working? Is there fairness in federal industrial policy? What impact is free trade having on regional disparities? Are we allowing the market to work properly?
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