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Spatially Optimal Allocation of Investments: An Application of the Dynamic Multiregional Social Accounting Matrix

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  • Euijune Kim
  • Jiyoun Ahn

Abstract

This paper analyzes the effect of regional income disparity on the allocation of investments using a dynamic multiregional Social Accounting Matrix (SAM) model. The optimal shares of total investments required to achieve the most balanced regional growth under the constraint of a 5% fixed annual economic growth rate were 37.74% for the Capital region, 18.83% for the Southeast region, 15.92% for the Central region, 13.90% for the East region and 13.61% for the West region. This policy requires an additional investment of 1.37% of the GDP, bringing about a 52.2% reduction in regional income disparity in terms of the Atkinson index. This implies that the decentralization of investment expenditures to less developed regions would lead to a substantial gain in regional income equity, on the one hand, and to the loss of cost effectiveness in investments, on the other.

Suggested Citation

  • Euijune Kim & Jiyoun Ahn, 2002. "Spatially Optimal Allocation of Investments: An Application of the Dynamic Multiregional Social Accounting Matrix," Review of Urban & Regional Development Studies, Wiley Blackwell, vol. 14(1), pages 41-58, March.
    • Handle: RePEc:bla:revurb:v:14:y:2002:i:1:p:41-58
    DOI: 10.1111/1467-940X.00047
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