Strategic Policy Competition with Public Infrastructure
AbstractGovernments try to attract firms and jobs by investing in international infrastructure. We analyse this type of strategic policy competition in a three-country model of monopolistic competition. What governments compete for, is to obtain a so called `hub' position. A hub is a relatively well connected location in a transport network. A hub might thus be an attractive location for firms. However, for a small or backward country the hub position, due to infrastructure investment, is overwhelmed by the disadvantage of a small home-market. As investment to become a hub triggers an investment response from other countries, a backward country is unlikely to keep its relatively attractive position. An attractive location is only sustainable if investment applies to point infrastructure and builds upon a natural advantage (e.g. an harbour). The game of action and reaction delivers socially undesirably high levels of infrastructure investment if transport costs are already low and firm mobility is high.
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Bibliographic InfoPaper provided by Utrecht School of Economics in its series Working Papers with number 04-24.
Length: 93 pages
Date of creation: Aug 2004
Date of revision:
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Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
- H4 - Public Economics - - Publicly Provided Goods
- R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-10-29 (All new papers)
- NEP-NET-2005-10-29 (Network Economics)
- NEP-PBE-2005-10-29 (Public Economics)
- NEP-URE-2005-10-29 (Urban & Real Estate Economics)
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