Across OECD regions, recent crises have left lasting scars, altering development priorities and reshaping the global landscape. Persistent structural pressures like constrained public finances, inflation, demographic shifts, and productivity stagnation are compounded by the urgent need to address climate and digital transformations. Governments are now faced with the daunting task of advancing economic competitiveness while ensuring inclusivity and cohesion across territories.
A recent report by the OECD (May 2025), Place-Based Policies for the Future, argues the need for a renewed focus on place-based policies—a strategic framework to tackle spatial disparities by targeting specific regions for tailored development initiatives.
What Are Place-Based Policies?
Unlike traditional “spatially-blind” macroeconomic policies—which apply a one-size-fits-all approach—place-based policies focus on spatially-targeted solutions. They aim to improve outcomes for economic development and well-being by addressing market failures and leveraging unique local conditions. These policies are sensitive to the geographic, cultural, and economic makeup of a region, enabling cross-sector integration and fostering multi-level governance. While their objectives often center around productivity, sustainability, and inclusion, they also address non-economic goals such as social cohesion and security.
Place-based policies are particularly significant in regions facing long-term underperformance or economic stagnation, where institutional capacities may be weaker, and disparities more entrenched. For example, the European Union’s Cohesion Policy, Korea’s Green New Deal, and U.S. initiatives like the CHIPS and Science Act illustrate how governments are integrating place-based strategies into broader economic frameworks.
Why Geography Matters
Economic geography plays a critical role in development outcomes. In theory, regions should naturally recover and align following economic shocks. However, reality paints a different picture: mobility of firms and workers is limited across OECD regions, with inter-regional migration rates hovering around 3% annually, and less than 1% in some countries. This lack of mobility can exacerbate the divergence between thriving and struggling regions, creating a “vicious circle” where out-migration of skilled workers leaves local economies weakened.
Spatially-blind policies often fail to account for these asymmetries, inadvertently harming regions with unique challenges. For instance, macro-level environmental policies like carbon pricing may disproportionately burden regions dependent on industries vulnerable to such measures. Here, place-based policies step in with tailored solutions, addressing spatial mismatches, upgrading local public goods, and responding to asymmetric shocks.
The Case for Place-Based Policies
The rationale for place-based strategies stems from their ability to address inefficiencies in local economies and enable untapped potential. By tackling mismatches between firms and workers, these policies optimize the use of local resources—be it human capital or physical infrastructure. They also play a pivotal role in strengthening local public good provision, laying the foundation for sustainable economic growth.
Moreover, place-based approaches facilitate innovation by nurturing localized networks and fostering regional diversification. By integrating policy initiatives across economic, environmental, and social dimensions, governments can better support transitions while mitigating the adverse effects of external shocks.
Addressing Inequality and Building Cohesion
Spatial inequality remains a persistent challenge across OECD countries, with 70% of the population living in regions experiencing economic divergence. These disparities have far-reaching consequences—not just economically, but socially and politically. Long-term unemployment within a community can result in intergenerational cycles of poverty, lowering overall outcomes and eroding trust in governance.
Place-based policies offer a solution to bridge these divides. By targeting regional underperformance, they limit economic inequality and foster social cohesion. As governments confront the growing “geography of discontent,” such strategies become ever more critical in maintaining democratic stability and rebuilding institutional trust.
A Renewed Focus
Although place-based policies are not new, their importance has surged in light of recent spatial shocks and transitions. Persistent disparities, coupled with pressing climate and demographic challenges, call for innovative policy designs tailored to current realities. The European Union, Korea, and the United States exemplify how large-scale place-based initiatives can address spatial challenges, integrating strategies for green transitions, technological development, and infrastructure growth.
As we move forward, the effectiveness of these policies hinges on their ability to align local needs with broader national goals. With persistent inequality threatening global cohesion, place-based policies offer a pathway to build resilient economies while fostering inclusive and sustainable development.
Conclusion
The urgency for adaptive policy frameworks has never been greater. By prioritizing spatially-sensitive approaches, governments can effectively address regional disparities, mitigate shocks, and support cohesive economic development. Place-based policies are not just a tool for economic efficiency—they are a cornerstone for sustainable, inclusive, and resilient societies in an evolving global landscape.
Download and read the full report:
OECD. 2025. Place-Based Policies for the Future. OECD Regional Development Studies, 19 May 2025. https://doi.org/10.1787/e5ff6716-en
