1. Introduction

If one were to describe the most general characteristic of the current global economic life, most likely it would be "change" – "change" in the broadest sense:

• Globalisation;
• Establishment of free trade zones;
• Macro- and microeconomic reforms initiated by the governments of developed countries;
• Restructuring and/or merges initiated by large companies; economic transition in the former communist world; and
• Deregulation of economies in developing countries.

Meanwhile, it is not very often that otherwise carefully designed and planned reforms take into account any regional implications.

The purpose of this module is to consider change from a regional perspective. We will be looking at two groups of changes: microeconomic restructuring and fiscal reforms. A two region /two product model is used to illustrate the theoretical concepts discussed. The objective is to determine the impact of a particular reform upon regional expenditure patterns and, therefore upon the socio-economic situation in the region.

The module consists of two parts.

In the first, microeconomic reform and/or large company's policy impact upon regions are discussed.

The term "reform" means a change, initiated by the government, in ownership, governmental policy or regulation. It can be deregulation and/or privatisation of a publicly owned enterprise or de-monopolization. Alternatively, a change can be initiated by the company itself.

We are interested in the external impact of a reform upon a region. Either a decision is made by a government "external" to the region –such as at the federal or state, province or local level; or the company is large enough and is operated at the national or multinational level. We will consider an industry or a company, which is a considerable part of an economy of a particular region and does not operate as a major player in any other region. Reforms usually involve considerable technological or organisational change, which often leads to considerable industry downsizing of employment. While the loss of industry employment is a negative consequence of reform, the main benefit is an increase in efficiency from which the nation as a whole gains. The question addressed in this module is what are the implications of reform upon the region where the industry is located?

The restructuring of the electricity supply industry (ESI) in the La Trobe Valley region of Victoria, Australia is used as an example. Some theoretical and practical issues surrounding the impact of microeconomic reform upon the state as a whole and upon a region will be considered. The restructuring of the ESI in the State of Victoria is an example of de-monopolization and privatisation of a natural monopoly formerly owned by the state government. Similar analytical tools can be applied and conclusions drawn if restructuring takes place of a large private company predominantly located in a particular region.

In the second, macroeconomic policy, fiscal federalism, and regions are considered. Any economic policy of the federal or state government can affect different regions of the state or sub-state in different ways. This depends upon a regional economy’s structure and specialisation as compared to the structure of a national or state economy. Fiscal policies, in countries with federal and centralised governmental structures are considered from the regional perspective. Changes in the federal/state tax mix as well as changes in the direct/indirect tax mix unevenly affect different regions and can cause either an increase or decrease in regional disparities.

The two region /two product model is used to illustrate regional implications of fiscal reforms. An example of such a reform is discussed based on the current fiscal policy debate in Australia.

Each of the parts consists of a case study based on current Australian experience, followed by a simple modelling illustration.