Tuesday, 16 July 2013

Why investing more in the capital can lead to less growth

an article by Lewis Dijkstra (Directorate-General for Regional and Urban Policy, European Commission, Brussels, Belgium) published in Cambridge Journal of Regions, Economy and Society Volume 6 Number 2 (July 2013)


This article argues that investing in a wide range of city sizes, or a portfolio of places, can be more conducive to growth than primarily investing in the largest city. A range of cities allows each firm to find its optimal city. This reduces the needed size of cities and thus congestion costs.

Less-developed European Union Member States have large and growing productivity gaps between their capitals compared with the rest of the country.

More-developed Member States have much smaller productivity gaps. Therefore, growth in the second-tier cities in less-developed Member States is likely to outpace growth in the capital in the medium term, yet public investment may be too focused on the capital city.

JEL classifications: O18, R12

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