After Maastricht: Public Investment, Economic Integration and International Capital Mobility
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.
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Volume (Year): 61 (1994)
Issue (Month): 243 (August)
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