Public infrastructure policies and economic geography

Abstract

This work proposes a simple way to analyze some of the effects of regional policies on industrial (economic) geography, regional income disparities and growth. For this purpose, it is used the "localized spillover" model, in which both the location and the endogenous growth rate are simultaneously determined. The model is extended to allow explicit consideration of different public policies such as infrastructure policies, transfers and subsidies to technology transfers, etc. An important message of this work is that the presence of localized technology spillovers implies that a trade-off exists between spatial efficiency and equity when infrastructure policies reduce the transport costs either between or inside regions. Public policies that facilitate the interregional diffusion of technology spillovers have very different implications and do not have this trade-off. European policy makers believe that regional policies are not only necessary to improve equity but also efficiency. To give a change to this argument, this work presents an analysis of regional policies in the presence of congestion effects. Multiple equilibria may appear even with capital mobility: a "good" equilibrium with high growth and low spatial concentration and a "bad" equilibrium with low growth and high spatial concentration. In the presence of congestion costs, policies that improve infrastructure in the poor region can improve growth and reduce inequality. Again, however, policies that facilitate the interregional diffusion of technology spillovers are better.