Multi-regional economic growth with public good and regional fiscal policies in a small-open economy

Abstract

This paper is concerned with multi-regional economic growth with environment, capital accumulation and regional public goods. The economy has a fixed number of regions, and there are a production sector and a public sector in a region. The production sector provides goods in perfectly competitive markets. The public sector, which is financed by the regional government’s tax incomes, supplies regional public goods. The public goods affect both firms and households. We show the existence of a unique equilibrium in the dynamic system. We simulate the equilibrium of 3-region economy and examine effects of changes in some parameters on the spatial economy. The comparative statics analysis provides some important insights. For instance, as the technologically least advanced region (TLAR) improves its productivity or amenity, the national output and wealth are reduced, and more people are attracted to the region from the more productive regions. The labor forces in the TLAR’s two sectors are increased, and the labor forces in the other two regions are reduced. The change pattern for the capital distribution is similar to the change in the population distribution. The output levels of the two sectors in the TLAR are increased and in the other two regions are reduced. The TLAR’s total and per capita expenditures on public goods are increased; the other two regions’ total and per capita expenditures are reduced. The per-worker output level, wealth and consumption level per capita, wage rate in the TLAR are increased, and those variables in the other two regions are reduced. The lot size falls and the land rent rises in the TLAR, and the trends are opposite in the other two regions.