Robert E. HallRobert and Carole McNeil Joint Hoover Senior Fellow and Professor of Economics - Stanford University
Spring 2008
Should the national government undertake policies aimed at
strengthening the economies of particular localities or regions? Agglomeration
economies and human capital spillovers suggest that such policies could
enhance welfare. However, the mere existence of agglomeration externalities
does not indicate which places should be subsidized. Without a better
understanding of nonlinearities in these externalities, any government spatial
policy is as likely to reduce as to increase welfare. Transportation spending
has historically done much to make or break particular places, but current
transportation spending subsidizes low-income, low-density places where
agglomeration effects are likely to be weakest. Most large-scale place-oriented
policies have had little discernable impact. Some targeted policies such as
Empowerment Zones seem to have an effect but are expensive relative to
their achievements. The greatest promise for a national place-based policy
lies in impeding the tendency of highly productive areas to restrict their own
growth through restrictions on land use.
