Economics, 3rd Edition

Regional or Industrial Policies 

In a number of European countries, the economy is now evenly 

 balanced – there are regions which are poorer than others. Firms will often gravitate to locate where the 

markets are biggest or where there are natural advantages such as ports, good infrastructure links and 

so on. Some regions are poor because they used to be the centre of industries that have declined. The 

decline of industries such as shipbuilding, iron and steel, the motor industry and the coal industry, for 

example, has not been matched by new industries springing up to absorb the jobs lost and as a result a 

negative multiplier process can take hold which means the region may stay economically undeveloped for 

long periods.  Governments may seek to reverse such economic imbalance by locating some of its own 

activities in these regions, providing investment grants, premises at reduced rents, employment subsidies 

and other measures to encourage firms to locate in these areas and develop jobs. The intention is that in 

encouraging investment in these areas a regional multiplier effect will take hold.

CONCLUSION

Supply-side policies have an intuitive feel to them; one of the main problems, however, is that shifting 

the aggregate supply curve to the right is a long-term process. Investing in education, training and 

research and development, for example, can boost the quality of human capital but the benefits to the 

economy may not be felt for many years. Market-orientated policies may sound impressive and laud-

able but the evidence to support the effectiveness of such policies is not overwhelming. It is perhaps 

safe to say that policies to improve the efficiency of markets and the capacity of the economy have to 

be carried out hand-in-hand with other policies and not be seen as being an either/or policy option to 

fiscal and monetary policy. Indeed, the differences between fiscal, monetary and supply-side policies 

are sometimes difficult to disentangle. If a government announces it is investing billions in a high-speed 

rail network does this represent a fiscal boost or is it purely focused on improving the supply-side of 

the economy?

SELF TEST 

Why is investing in the right sort of education and training considered important to the success 

of interventionist policies?

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CHAPTER 35  SUPPLY-SIDE POLICIES  757