Resilience and Convergence: Short vs.Long-Run Regional Effects of Economic Crises and Macroeconomic Policies

Abstract

Before the outbreak of the Great Recession, considerable attention was devoted to what makes a region successful, and why some regions grow faster than others, but researchers often overlooked how regions react to shocks and why this happens in a heterogeneous way. Furthermore, the classic literature on regional inequalities has mainly focused on the longterm relationship between economic growth and regional disparities and on the role of labor mobility, sometimes also as a mechanism of adjustment to labor demand idiosyncratic shocks. This literature trend has reversed since 2008, when investigation of the heterogeneous impact of shocks across areas became prominent in regional studies because also addressed was the issue of regional resilience. Therefore, also the discussion on the asymmetric effects of macroeconomic policies, which was not a major concern in recent decades, has suddenly reemerged. Within-country disparities indeed increased during the 1980s, reflecting gains from economic concentration in some regions and relative stagnation in others; but they intensified during the global financial crisis of 2008, therefore calling for new ideas to support policy decisions. Similarly, the processes of European integration and reducing interregional disparities may have been severely jeopardised by the Great Recession, as perceived by many analysts just after the outbreak of the crisis. This paper surveys the recent approaches adopted to study regional disparities as related not only to the process of economic growth but also to economic downturns. Starting from the analysis of the relationship between national business cycles and idiosyncratic regional shocks, we discuss the role of macroeconomic policies and dynamics in affecting, through the impact on specific local assets, the process of (unequal) long-run regional growth as well as short-run resilience to economic shocks.