Effects of public policy measures on regional economic growth: Evidence from German labour market regions and Chinese provinces

Existing dissimilar economic conditions, which are observable in many countries worldwide, are economically inefficient and also imply important political and social challenges, for example, the increasing achievements of populist movements, particularly in economically underdeveloped regions. Thus,...

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Main Author: Eberle, Jonathan
Contributors: Brenner, Thomas (Prof. Dr. Dr.) (Thesis advisor)
Format: Dissertation
Language:English
Published: Philipps-Universität Marburg 2019
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Summary:Existing dissimilar economic conditions, which are observable in many countries worldwide, are economically inefficient and also imply important political and social challenges, for example, the increasing achievements of populist movements, particularly in economically underdeveloped regions. Thus, supporting economically less prosperous regions is a highly important political objective. It is of great importance to identify drivers for economic growth and to apply efficient policy measures to spur regional development. Based on economic growth theory, the doctoral thesis at hand contributes to the identification of the complex outcomes of four German and one Chinese policy measures aimed at fostering regional development. The German policy measures are analysed on the level of labour market regions and comprise structural funding, regional fiscal equalisation and public research activities. The Chinese study investigates the economic effects of research and development (R&D) subsidies to firms on the level of provinces. Due to recent economic and structural changes, China is chosen as additional case study: the Chinese government is currently driving the transformation from a capital-based to an innovation-based economic system by applying a variety of innovation-enhancing policy measures. By providing novel empirical findings, the doctoral thesis at hand extends recent German and Chinese studies. These studies examine the economic effects of public polices by mainly conducting partial effect analyses (singe equation models) and by mainly focussing on the effect on one particular dependent variable (usually the regional output). Indirect effects running through other economic variables in a regional production system are disregarded, as are the effects on further economic variables. Both of these shortcomings are accounted for in the thesis at hand. Furthermore, analysing several German policy measures allows the identification of unique characteristics and a deduction of concrete implications to foster the development of different economic variables. Finally, the thesis also examines the role played by regional conditioning factors for the working of public policies. Although each research paper provides specific research questions, the overarching research question of the thesis are as follows: 1. What are the overall economic effects of the analysed policy measures in Germany and China on different regional input and output factors of a regional production function? 2. Do the analysed German policy measures add to regional development via different transmission channels and can unique characteristics be identified? 3. Do economic responses to an increase in German structural funding and regional fiscal equalisation funding depend on conditioning factors such as a region’s absorptive capacity, economic freedom and political-economic conditions? The first two research questions are related to unconditional effects, which are the estimated effects on the basis of all German regions and Chinese provinces, respectively. In this thesis, the methodological basis of the conducted analyses are vector autoregressive (VAR) models and a graphical impulse response function analysis. This approach explicitly allows emprirical researchers to determine total effects on a set of defined economic variables that are triggered by a particular public policy measure. With regard to the unconditional effects (research questions 1 and 2), it can be stated that German structural funding increases can be linked to statistically significant positive effects on the gross domestic product (GDP) per workforce, human capital and employment rate. Conversely, German regional fiscal equalisation is solely associated with a statistically significant positive effect on the regional employment rate. The empirical results on the effects of German public research activities show that an increase in the publication rate of public research institutes is associated with significant positive effects on the regional physical capital investment and employment rate. Although no statistically significant effects can be identified for research activities of universities, an increase in the summarised public third-party funds allocated to universities and technical colleges combined can be linked to statistically significant positive effects on the regional GDP per workforce, patent activity and employment rate. Finally, technical colleges seems to be locally more embedded: allocated (public) third-party funds to technical colleges are associated with significant positive effects on the human capital, employment and physical capital investment rate. Using data from Chinese provinces, the empirical findings reveal that an increase of public R&D subsidies granted to Chinese firms results in a statistically significant decrease in private R&D investments. Thus, a first-order policy objective is not achieved. However, the conducted analysis also reveals a significant positive effect on the stock of private R&D personnel. Finally, an increase in the policy intensity also corresponds with statistically significant positive effects on the technological development and capital deepening (investment rates in physical capital and residential buildings). The analysis of the role played by regional conditioning factors (research question 3) emphasises the importance of regional absorptive capacity and economic freedom for the working of German structural funding. Regions with low levels of absorptive capacity and economic freedom benefit from German structural funding mainly through an increased investment rate in physical capital, while a positive effect on the development of regional technology and GDP cannot be identified. Conversely, in regions with high levels of absorptive capacity and economic freedom, the findings reveal significant positive effects of structural funding on the regional GDP and innovation activity. Finally, the research paper on effect heterogeneity of regional fiscal equalisation suggests statistically significant differences in the estimated effects only for single years. Regional fiscal equalisation is more effective in increasing physical capital investments in East German regions and the employment rate in West German regions. In addition, only an increase in the funding intensity in Christian Democratic Party/Christian Social Party (CDU/CSU) preferring regions is associated with significant positive effects on the human capital and physical capital investment rate. Conversely, a significant positive effect on the GDP is identified only in Social Democratic Party (SPD) preferring regions. The findings of this thesis emphasise the complex and reciprocal mechanisms of the analysed policy measures. They add to regional development in a multifaceted way and positively affect different economic variables. That said, empirical analyses restricted to the effects on the regional output limit the interpretation of policy evaluation studies and neglect additional transmission channels. Moreover, the results reveal that policy makers have different options to spur regional development in different contexts. Finally, the empirical findings stress the prominent role of technological and institutional conditions, especially for the working of structural funding in Germany. Therefore, policy makers should provide more incentives to improve these conditions and they should direct public investments especially to regions with already proper initial conditions.
Physical Description:292 Pages
DOI:https://doi.org/10.17192/z2019.0514