Governments have spent trillions trying to close the gap between prosperous and struggling regions. Tax incentives for distressed areas. Infrastructure investments in left-behind communities. Enterprise zones, regional development grants, place-based policies of every description. Yet the economic distance between thriving metropolitan cores and declining peripheries has, in most countries, widened over the past forty years.

This persistence puzzles policymakers who assumed market forces and targeted intervention would gradually spread prosperity outward. Instead, we observe what economic geographers call divergence—the rich regions getting richer while struggling areas fall further behind. The pattern holds across Europe, North America, and much of the developed world.

Understanding why requires looking beyond individual policies to the structural forces shaping regional economies. These forces operate through feedback loops that compound initial differences, resist conventional interventions, and create painful tradeoffs between helping places and helping people. The geography of opportunity, it turns out, has its own stubborn logic.

Swedish economist Gunnar Myrdal identified the core mechanism in the 1950s: initial advantages don't just persist—they compound. A region with slightly more skilled workers attracts firms seeking talent. Those firms create more high-wage jobs, which attract more skilled workers. Better jobs generate tax revenue for schools and infrastructure, which makes the region still more attractive. This is cumulative causation—success breeds success through reinforcing feedback loops.

The reverse operates in struggling regions with equal force. When a major employer closes, skilled workers leave first. Their departure shrinks the local consumer base, closing retail and service businesses. Falling tax revenues degrade schools and infrastructure. The region becomes less attractive to replacement employers, making the next closure more likely. Myrdal called these backwash effects—decline that feeds on itself.

Modern agglomeration economics has formalized these dynamics. Paul Krugman's work shows how transportation costs, increasing returns to scale, and labor market pooling create powerful centripetal forces pulling economic activity toward existing centers. Once a region establishes a critical mass in an industry, that advantage becomes self-sustaining. Silicon Valley's dominance in tech, London's grip on European finance, Hollywood's lock on entertainment—these aren't accidents but equilibria that resist displacement.

The timeline matters enormously. Advantages established decades or centuries ago continue shaping today's geography. Boston's early universities, established in the 1600s and 1700s, anchor its current biotech cluster. Germany's industrial heartland reflects 19th-century coal deposits. Regions don't compete on a level playing field—they compete carrying the accumulated weight of their economic history.

Takeaway

Regional economic trajectories aren't random or easily reversed—they're path-dependent processes where small initial differences compound into large, self-reinforcing disparities over time.

If cumulative causation is so powerful, why haven't massive policy interventions overcome it? The uncomfortable answer is that most regional development policies work against forces far stronger than themselves. Offering tax breaks to locate in a struggling region doesn't eliminate the productivity advantages of established clusters. It just compensates firms for accepting lower productivity.

Consider enterprise zones—designated areas receiving tax incentives and regulatory relief. Rigorous evaluations consistently find modest effects at best. A zone might attract businesses, but often these are relocations from nearby areas rather than new economic activity. Jobs created in the zone may be offset by jobs lost just outside it. The policy shuffles economic geography without expanding it.

Infrastructure investment faces similar limits. Building highways or broadband to peripheral regions can improve their connectivity—but connectivity cuts both ways. Better transportation links to metropolitan cores can make it easier for residents to leave and for local businesses to face competition from larger, more efficient urban firms. Infrastructure that was supposed to bring opportunity in sometimes just accelerates the drain out.

The scale mismatch is fundamental. Regional development budgets measure in millions or low billions. The economic forces driving agglomeration operate in the trillions. A factory incentive package looks impressive in a press release but barely registers against the productivity differential between locations. Policies aren't useless, but expecting them to reverse structural divergence mistakes tweaks for transformations.

Takeaway

Traditional place-based policies often fail not because they're poorly designed, but because they're fighting structural economic forces orders of magnitude more powerful than the interventions themselves.

The persistence of regional inequality forces a difficult question: should policy focus on helping places prosper or helping people reach prosperity wherever it exists? These goals sound compatible but often conflict in practice. Investing in struggling regions may help those who stay but could also anchor people in low-opportunity areas when leaving would improve their lives.

Economists generally favor mobility. If opportunity concentrates in certain locations, rational policy should reduce barriers to relocation—help people move to jobs rather than moving jobs to people. This view has empirical support: individuals who migrate from declining to thriving regions typically see substantial income gains. Their children's outcomes improve. From a pure welfare perspective, facilitating mobility seems efficient.

But people aren't just economic units optimizing lifetime earnings. They have families, communities, and social networks rooted in place. Asking a 50-year-old whose factory closed to uproot and start over in an expensive coastal city isn't just logistically hard—it can mean severing the relationships and identity that make life meaningful. Communities themselves have value beyond their residents' aggregate income.

The tension has no clean resolution. Pure place-based policy risks subsidizing decline indefinitely and trapping people in low-opportunity areas. Pure mobility policy risks abandoning communities, accelerating regional divergence, and asking enormous personal sacrifices from those already disadvantaged. Most thoughtful regional strategies try to balance both—smoothing transitions for those who leave while creating genuine opportunities for those who stay—but the tradeoff remains inescapable.

Takeaway

Regional policy involves a genuine dilemma between investing in places and investing in people's mobility—and different answers reflect different values about community, efficiency, and what we owe to struggling regions.

Regional inequality persists because it emerges from deep structural forces—cumulative causation, agglomeration economies, path dependence—that conventional policies can influence but rarely overcome. Decades of enterprise zones, infrastructure investment, and development incentives haven't closed the gap because they address symptoms while the underlying dynamics continue operating.

This doesn't mean policy is pointless. Understanding structural constraints helps identify interventions that work with economic geography rather than against it—investing in education and mobility, building on existing regional strengths, accepting that some decline may be irreversible while still supporting those affected.

The honest reckoning regional policy requires is accepting limits. Not every region will thrive. Not every community can be saved through intervention. What we can do is make transitions less brutal, choices less constrained, and ensure that where people happen to be born doesn't permanently determine what opportunities they'll ever see.