How Regions Grow

Given that the world’s economy has never been more interdependent, differences across regions within countries are often greater than differences between countries; yet economists, policy makers and international organisations have paid less attention to regional development than to national growth. Marked variations in economic performance among OECD regions reflect the regions’ great diversity in income levels, employment rates, mixes of high and low productivity, assets, comparative advantages stages of development and public policies.

The current debate on regional policy and development focuses on whether policies should be pro-equity or pro-efficiency, implying that a trade-off is inevitable.

The OECD doesn’t share this view. Instead, it reframes the debate, arguing that national governments should promote growth in all regions. And regions should invest in their own growth by mobilising local assets and resources so as to capitalise on their specific competitive advantages, rather than depending on national transfers and subsidies to help them grow.

This Policy Brief discusses how innovation and other growth factors are linked to geography, explaining why some regions grow while others do not. It also suggests that comparative advantages and complementarities across regions will help ensure that growth in one place produces benefits elsewhere.