Subsidizing Education in the Economic Periphery: Another Pitfall of Regional Policies?

This discussion paper analyses how education subsidies in poor areas can hurt instead of help due to the fact that high skilled workers can cross some threshold level of qualification beyond which emigration accrues.

Subsidizing Education in the Economic Periphery: Another Pitfall of Regional Policies?

Abstract

One of the most prominent instruments of regional policy is to foster education and human capital formation in economically lagging regions. However, regional policy of this type can actually hurt instead of help the poor areas. The reason is that individual geographical mobility increases with the personal skill level.

Through education subsidies, particularly if targeted on relatively high skilled workers, individuals can cross some threshold level of qualification beyond which emigration accrues. Regional policies then result in a human capital flight harmful to individuals remaining in the economic periphery.

This fatal result does not hold for such policies that foster basic education and focus on the relatively low skilled.

You can download the

full discussion paperon the Hamburg Institute of International Economics website.