Can regional economic development really happen?

Can regional economic development really happen? I’m not sure it can.  Building stuff increases nominal GDP. But does it increase real GDP per capita?

Perhaps, but there are no guarantees. There are zombie towns in New Zealand today. They are struggling despite a “rock star economy” the previous government claims to have left to the new government.

There is a reason why people and capital have been leaving the regions. Big cities attract young people. Big cities have agglomeration effects. Growth happens in big cities. Productivity is higher in big cities. But New Zealand’s big cities aren’t that complex or productive.

We have small cities in New Zealand. They’re not as productive as big cities in other countries. Maybe economic geography and distance from trading partners and rising population over a low base of natural resources to begin with can help explain our low productivity growth over the past 50 years.

If there’s any lesson from our history, it’s that there will be more zombie towns in our future. Social capital matters. Very few people will actually sell their house in Auckland and move to the regions. Even fewer will create creative, high value add businesses from the provinces.

The lack of ambition that is implicit in the idea that 1 billion trees can save the poorer parts of New Zealand should be pretty clear. Don’t we want more for our citizens?