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International Positive Production Externalities and Capital Movement


  • Charalambos Savvidis

    (Panteion University)


I attempt to establish whether positive international externalities generate an incentive for cooperation between governments and how that incentive depends on the degree of capital mobility between economies. I adopt a simple economic model incorporating the international linkage of national economies. Allowing for capital mobility does not destroy the incentive to cooperate, since it does not affect optimal policies in the symmetric long run equilibrium. In the short run, capital mobility triggers a 'race to the bottom' effect, which comes in addition to the 'free riding' effect existing because of positive international production spillovers. Thus, allowing for capital mobility intensifies the need to cooperate.

Suggested Citation

  • Charalambos Savvidis, 2010. "International Positive Production Externalities and Capital Movement," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 8(2), pages 187-226.
  • Handle: RePEc:seb:journl:v:8:y:2010:i:2:p:187-226

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    Cited by:

    1. Charles Figuières & Fabien Prieur & Mabel Tidball, 2013. "Public infrastructure, noncooperative investments, and endogenous growth," Canadian Journal of Economics, Canadian Economics Association, vol. 46(2), pages 587-610, May.

    More about this item


    Production externalities; Capital mobility; International policy coordination; Intertemporal Choice;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies


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