Regional Private Sector Development Strategies

How can subnational governments encourage private sector development in backward regions? How successful have investment and employment incentives been in creating output and jobs in lagging regions?

Traditional regional development policies have emphasized the provision of financial incentives, infrastructure and other public services. However, recent successes with local economic development strategies based on public-private partnerships, albeit as practiced mostly in developed countries, have prompted their application in developing countries at regional and municipal levels of government. Current approaches emphasize methods for assessing the competitive advantages of the region/locale, and public-private consultation and joint initiatives to strengthen them. In this section, we present both the traditional and the more recently observed strategies.

Financial incentives, including tax breaks were the cornerstone of regional policy in many developed countries in the 1960s and 1970s. They continue to play an important role in the USA and some countries in Western Europe and have also been used in developing countries. This long experience is examined in notes and annotated bibliographies on investment and employment subsidies. We also present a summary of recent theoretical work on incentive policy in multiregional contexts including tax competition among regions.

In addition, we present some readings on other development strategies that have been applied at the regional level, including the establishment of industrial districts and the provision of other commercial infrastructure, technology and innovation policies, and SME programs. For further reading in this area we refer you to the PSD website on Business Environment.