Policy Spillovers in a Regional Target-Setting Regime

The present UK government has begun a radical overhaul of regional policy, as outlined in HM Treasury (2001) and HM Treasury et al (2003). One particular change is the decentralisation and delegation of regional policy delivery in England to Regional Development Agencies (RDAs) that are motivated and controlled through target setting (McVittie and Swales, 2004a). A major argument for decentralisation is that indigenous institutions have informational advantages over central government in the delivery of a flexible and discretionary regional policy that is sensitive to local economic conditions (HM Treasury et al., (2003). The specific concern in this paper is the co-ordination difficulties within such a regime where there are policy spillovers across regions and where these spillovers are not common knowledge amongst the government and the delegated agencies. At present although the English regions are extremely open, so that spillover effects are to be expected, there is no consensus as to the size or even the sign of such effects. Past work on identifying regional policy spillovers has not focussed on the impact on non-recipient regions or the nation as a whole (Taylor, 2002). What is more, the data on some of the channels through which such spillovers might act, in particular inter-regional trade and migration, are poor (Alsopp, 2003, McVittie and Swales, 2004b).