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Public goods production and private sector productivity

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Abstract

In this paper we study how the use of resources in the public sector affects industrial structure, the size and the productivity in knowledge-intensive clusters in local communities. We also discuss how these considerations should be implemented in costbenefit assessments of local public goods supply. The topics are studied in a setting where there are gains from agglomeration in knowledge-intensive industries, creating clusters of firms in such industries. We find that the primary effect is a Rybczynski effect: If production in the public sector is knowledge-intensive, the size of the knowledge-intensive private industry declines when the public sector increases its production. If, on the other hand, public sector production uses relatively much unskilled labour, increased public goods production leads to higher production in the knowledge-intensive private industries. Private sector productivity is affected in the same way as production: If production in the knowledgeintensive industry increases, so does its productivity due to agglomeration effects; leading to higher wages for highly skilled labour.

Suggested Citation

  • Norman, Eva Benedicte Danielsen, 2010. "Public goods production and private sector productivity," Discussion Paper Series in Economics 17/2010, Norwegian School of Economics, Department of Economics.
  • Handle: RePEc:hhs:nhheco:2010_017
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    More about this item

    Keywords

    Agglomeration; external economies of scale; firm location; production cost; regional government policies.;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • H00 - Public Economics - - General - - - General
    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General

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