The economic geography of transition countries: Winners, losers and future prospects

Group of researchers (Klaus Desmet, Dávid Krisztián Nagy, Dzhamilya Nigmatulina and Nathaniel Young)

The economic geography of transition economies has changed dramatically over the last quarter century, with large urban areas growing fast and many smaller places facing declining populations. Using a high-resolution spatial growth model, this column projects the transition economies as a whole to perform economically well over the next decades, especially the region’s densest places. Large-scale infrastructure projects such as the Belt and Road Initiative will have a positive impact, but not more so than modest reductions of general trade frictions. 


Our analysis suggests that the broad geographic changes occurring in Europe and the rest of the EBRD regions create opportunities for productivity growth and overall economic gains. The forces behind the evolving patterns of population concentrations across space are deep and pervasive. While overall positive in their effects, these changes also leave segments of the population behind in areas that become increasingly sparsely populated. As those areas lose density, their local opportunities recede as well. Policies to soften their landing, while attempting to ignite some of the agglomeration forces on which they’ve missed out, could be their best chance for achieving growth and maintaining well-being. Investments to improve local amenities such as the provision of water, healthcare and energy, and investments in local education opportunities may work well in these areas. Such policies must be implemented with caution, as they may have negative effects in the aggregate.  Alternatively, measures that incentivise geographic mobility may help to improve the opportunities of residents in left-behind places.



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