We study the impact of home-biased public expenditure on international specialisation in general equilibrium models with increasing returns and monopolistic competition. It is found that home-biased procurement attracts increasing-returns industries to the home country (the "pull" effect) and attenuates the overall degree of industrial specialisation (the "spread" effect). Empirical evidence based on input-output data for the European Union confirms the existence of these links between public expenditure and the location of manufacturing activities.
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Length: 43 pages Date of creation: Sep 2000 Date of revision: Publication status: Published in European Economic Review, vol. 48 (4), August 2004, pp. 851-881 Handle: RePEc:lau:crdeep:00.23
Find related papers by JEL classification: H5 - Public Economics - - National Government Expenditures and Related Policies F1 - International Economics - - Trade R3 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location R15 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods
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