| Abstrakt: |
Local and regional governments have always been important players in economic development. They create jobs as employers and as purchasers of inputs from the private sector. Local governments are often responsible for regulating local economic activities and providing the social and physical infrastructure which complements private economic activities. In liberal market regimes the opinion is generally divided on whether municipalities who intervene in market in developing their own government enterprises, promote local economic development or, in contrary, create an additional competition in private sector. The aim of the article is to outline possible scenarios for local government intervention in order to correct market failures at the local level. The methodology is based on the literature review about local economic development, and the concept of market failure. This allows to distinguish between a variety of approaches to local economic development policies, such as the business-oriented approach, or the poverty reduction-oriented approach, such as the reduction of unemployment. Additionally, an e-mail survey of Latvian local governments conducted in May of 2016 about their views on local economic intervention provided an additional insight in describing the scenario. The assessment of economic role of local and regional governments shows that in nearly all EU countries local and regional authorities are allowed to engage in economic activity. In some cases, there are restrictions or safeguards such as prohibitions on exercising a monopoly, ceilings (whether absolute or percentage) on equity participation, or a requirement that activities be reconcilable with the local authority's interests. Theoretical investigation of the concept of market failure as well as the results of the survey show that local government's interpretation of the market failure in practice largely depends on it's the strategic orientation and economic capabilities. Before the implementation of the particular method of correcting the market failure, the local government need to be aware of whether the free market mechanism can solve the specific problems. In cases where the provision of services for the private market players is a high risk, risk mitigation strategies or alternative economic development models have to be considered. [ABSTRACT FROM AUTHOR] |
