Productive Public Expenditure in a New Economic Geography Model
AbstractThis paper elaborates on Baldwin’s (1999) New Economic Geography model allowing for capital accumulation and capital mobility between a “rich” and a “poor” region. A central government decides upon the level and the regional and sectoral allocation of productivity enhancing public investments. We derive results on how such policies affect the overall private capital stock and its regional allocation under alternative financing schemes. We show that the regional and sectoral distribution of public capital matters in determining the final impact of an increase in public capital on the level of private capital. Furthermore, we find that increasing public capital in the “poor” region does not always increase the share of manufacturing in that region as the final result depends on the relative strength of two effects which have been studied separately in the literature so far: the “productivity” and the “demand” effects. Finally, we show that in order to be effective regional policy must not confine itself to the expenditure side but has to take into account the financing side at the same time.
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Bibliographic InfoArticle provided by CEPII research center in its journal Economie Internationale.
Volume (Year): (2008)
Issue (Month): 114 ()
New economic geography; public expenditure; footloose capital;
Other versions of this item:
- Commendatore, Pasquale & Kubin, Ingrid & Petraglia, Carmelo, 2007. "Productive Public Expenditure in a New Economic Geography Model," MPRA Paper 5824, University Library of Munich, Germany.
- F20 - International Economics - - International Factor Movements and International Business - - - General
- H5 - Public Economics - - National Government Expenditures and Related Policies
- R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
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