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Growth Effects of Spatial Redistribution Policies

  • Calin Arcalean

    ()

    (Indiana University)

  • Gerhard Glomm

    ()

    (Indiana University)

  • Ioana Schiopu

    ()

    (Indiana University)

We develop a two-region, two sector model with migration and public investment in infrastructure and education. In a numerical example calibrated to Portugal, we find that the structural funds can improve the growth rate of the lagging region and slightly reduce the regional inequality, without necessarily producing convergence. When the mix of national public investment departs from optimum, the allocation of supra-national funds across infrastructure and public education can partially offset this national sub-optimality. We also find that the short-run growth-maximizing mix is different from the long-run mix. Moreover, the rich region has an incentive to bias the allocation of structural funds towards human capital formation.

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File URL: http://www.iub.edu/~caepr/RePEc/PDF/2007/CAEPR2007-002.pdf
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Paper provided by Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington in its series Caepr Working Papers with number 2007-002.

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Length: 39 pages
Date of creation: Jan 2007
Handle: RePEc:inu:caeprp:2007002
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