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After Maastricht: Public Investment, Economic Integration and International Capital Mobility

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  • Clarida, Richard
  • Findlay, Ronald

Abstract

This paper studies some implications of economic integration in the context of a neoclassical model of international trade, public investment, and capital mobility. Owing to the endogeneity of the productive public capital stock, international capital mobility, while equalizing returns to capital, can lead to a divergence in the wages earned by labor. The authors also demonstrate that international capital mobility can set off an infrastructure investment boom. If the benefits of capital spill over across national borders, governments in the Nash equilibrium spend the '1992' dividend on an excessive provision of public services, attempting to free-ride on the public capital of their neighbors. Copyright 1994 by The London School of Economics and Political Science.

Suggested Citation

  • Clarida, Richard & Findlay, Ronald, 1994. "After Maastricht: Public Investment, Economic Integration and International Capital Mobility," Economica, London School of Economics and Political Science, vol. 61(243), pages 319-329, August.
  • Handle: RePEc:bla:econom:v:61:y:1994:i:243:p:319-29
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    Cited by:

    1. Lejour, A.M. & Verbon, H.A.A., 1996. "Fiscal Policies and Endogenous Growth in Integrated Capital Markets," Discussion Paper 1996-76, Tilburg University, Center for Economic Research.
    2. Solanko, Laura, 2001. "Fiscal competition in a transition economy," BOFIT Discussion Papers 4/2001, Bank of Finland, Institute for Economies in Transition.
    3. Keen, Michael & Marchand, Maurice, 1997. "Fiscal competition and the pattern of public spending," Journal of Public Economics, Elsevier, vol. 66(1), pages 33-53, October.
    4. Ganelli, Giovanni & Tervala, Juha, 2010. "Public infrastructures, public consumption, and welfare in a new-open-economy-macro model," Journal of Macroeconomics, Elsevier, pages 827-837.
    5. Derek K. Kellenberg, 2007. "The Provision Of Public Inputs And Foreign Direct Investment," Contemporary Economic Policy, Western Economic Association International, vol. 25(2), pages 170-184, April.
    6. Bond,Eric W., 1997. "Transportation infrastructure investments and regional trade liberalization," Policy Research Working Paper Series 1851, The World Bank.

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