9 - Regional imbalances and government compensatory financial flows: the case of Spain

Summary

Introduction

Different levels of economic growth among regions is a fact common to most countries, although with a wide variety of degree and character.

Regional economics has tried to find scientific explanations for those differences, borrowing from general theories of growth, development, capital and international trade but, at the same time, applying specialized theories about space and location in economics.

Starting from different approaches, hypotheses and assumptions, Neoclassical models (Meade, 1963); Cumulative causation models (Myrdal, 1957; Kaldor, 1957, 1970); Export base models (Bolton, 1966); Agglomeration models (Lösch, 1954; Giersch, 1949; von Böventer, 1970); Location theory models (Isard, 1956; Beckman, 1968); Urban monocentric models (Alonso, 1964); and Innovation models (Grossman and Helpman, 1991) among others, have tried to explain why growth rates differ among countries and regions.

If there is a common ground to most of their findings, this is that production and consumption tend to concentrate spatially due to economies of scale, economies of transport and external economies, and therefore tend to produce divergence among different areas or regions in a country, or among different countries. There are, nevertheless, two extreme positions. In Neoclassical models growth rates tend, in the long run, to be more balanced due to decreasing returns to capital and countries and regions tend to converge and, at the other extreme, cumulative causation models show that there is a permanent tendency for countries and regions growth rates to diverge.