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Investment in trade facilitating infrastructure: A political-economy analysis

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  • Lorz, Oliver

Abstract

This paper analyzes public investment in infrastructure that facilitates international trade. It considers a world consisting of small open economies that face transport costs for exporting or importing a particular good. Transport costs can be lowered by an improvement in transport infrastructure. National governments non-cooperatively decide about their respective country's investment level. Governments' preferences are assumed to be biased in favor of producers' interests with consequences for equilibrium investments: Exporting countries, whose producers benefit from a transport cost reduction, spend more for infrastructure than importing countries, whose producers are protected by transport costs from foreign competition. This outcome is inefficient, and governments have an incentive to cooperate internationally. The paper also incorporates bilateral trade with two goods that benefit from infrastructure improvements as well as trade that results from offshoring.

Suggested Citation

  • Lorz, Oliver, 2020. "Investment in trade facilitating infrastructure: A political-economy analysis," European Journal of Political Economy, Elsevier, vol. 65(C).
  • Handle: RePEc:eee:poleco:v:65:y:2020:i:c:s0176268020300768
    DOI: 10.1016/j.ejpoleco.2020.101928
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    2. Nchofoung, Tii N. & Asongu, Simplice A., 2022. "Effects of infrastructures on environmental quality contingent on trade openness and governance dynamics in Africa," Renewable Energy, Elsevier, vol. 189(C), pages 152-163.
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    4. Zheng, Shiyuan & Chen, Xirong & Dong, Kangyin & Wang, Kun & Fu, Xiaowen, 2022. "Joint investment on resilience of cross-country transport infrastructure," Transportation Research Part A: Policy and Practice, Elsevier, vol. 166(C), pages 406-423.

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