Spatially Optimal Allocation of Investments: An Application of the Dynamic Multiregional Social Accounting Matrix

Abstract

This paper analyzes the effect of regional income disparity on the allocation of investments using a dynamic multiregional Social Accounting Matrix (SAM) model. The optimal shares of total investments required to achieve the most balanced regional growth under the constraint of a 5% fixed annual economic growth rate were 37.74% for the Capital region, 18.83% for the Southeast region, 15.92% for the Central region, 13.90% for the East region and 13.61% for the West region. This policy requires an additional investment of 1.37% of the GDP, bringing about a 52.2% reduction in regional income disparity in terms of the Atkinson index. This implies that the decentralization of investment expenditures to less developed regions would lead to a substantial gain in regional income equity, on the one hand, and to the loss of cost effectiveness in investments, on the other.