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Institutional design and spatial (in)equality - the Janus face of economic integration

Ott, Ingrid; Soretz, Susanne

This paper analyzes within a spatial endogenous growth setting the impact of public policy coordination on agglomeration. Governments in each of the two symmetric regions provide a local public input that becomes globally effective due to integration. Micro-foundation of governmental behavior is based on three different coordination schemes: autarky, full or partial coordination. Scale effects act as agglomeration force and in addition to private capital agglomeration increase the concentration of the public input. Integration promotes dispersion forces with respect to the distribution of physical capital which are based on decreasing private returns. However, within the governments’ decision on the concentration of the public input, increasing integration reinforces agglomeration because it promotes the interregional productive use of the public input. Taking feedback effects between the private and the public sector into account leads to mutual reinforcement, hence agglomeration forces almost always dominate and the spreading equilibrium becomes unstable. If convergence is a separate (additional) political objective, it needs sustained additional political effort.

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DOI: 10.5445/IR/1000122442
Veröffentlicht am 06.08.2020
Cover der Publikation
Zugehörige Institution(en) am KIT Institut für Volkswirtschaftslehre (ECON)
Publikationstyp Forschungsbericht/Preprint
Publikationsmonat/-jahr 08.2020
Sprache Englisch
Identifikator ISSN: 2190-9806
KITopen-ID: 1000122442
Verlag Karlsruher Institut für Technologie (KIT)
Umfang 41 S.
Serie Working Paper Series in Economics ; 142
Schlagwörter income convergence; integration; micro foundation of public policy; policy coordination; productive public input; multiple equilibria; bifurcation; spatial economic growth; stability of spatial equilibrium; global public input
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