The capital account and regional balance of payments problems

Abstract

Many regional issues can be expressed in terms of regional balance of payments accounts. This framework in turn highlights a feature of regional economics to which little attention is paid: inter-regional capital flows. It is the presumption that these flows accommodate demand which explains the apparent absence of regional balance of payments problems. In fact, if capital flows are not accommodating, then regional balance of payments problems may be more serious than for countries with separate currencies, since they require income adjustment. Having explained the balance of payments accounts in regional terms and the nature and significance of inter-regional capital flows, the paper concludes with a discussion of data requirements, with particular reference to the Scottish case.