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Public goods production and private sector productivity

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    Abstract

    In this paper we study how the use of resources in the public sector affects industrial structure, the size and the productivity in knowledge-intensive clusters in local communities. We also discuss how these considerations should be implemented in costbenefit assessments of local public goods supply. The topics are studied in a setting where there are gains from agglomeration in knowledge-intensive industries, creating clusters of firms in such industries. We find that the primary effect is a Rybczynski effect: If production in the public sector is knowledge-intensive, the size of the knowledge-intensive private industry declines when the public sector increases its production. If, on the other hand, public sector production uses relatively much unskilled labour, increased public goods production leads to higher production in the knowledge-intensive private industries. Private sector productivity is affected in the same way as production: If production in the knowledgeintensive industry increases, so does its productivity due to agglomeration effects; leading to higher wages for highly skilled labour.

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    Bibliographic Info

    Paper provided by Department of Economics, Norwegian School of Economics in its series Discussion Paper Series in Economics with number 17/2010.

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    Length: 33 pages
    Date of creation: 17 Aug 2010
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    Handle: RePEc:hhs:nhheco:2010_017

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    Related research

    Keywords: Agglomeration; external economies of scale; firm location; production cost; regional government policies.;

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