Institutional design and spatial (in)equality: The Janus face of economic integration
Ingrid Ott and
Susanne Soretz
No 142, Working Paper Series in Economics from Karlsruhe Institute of Technology (KIT), Department of Economics and Management
Abstract:
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.
Keywords: income convergence; integration; micro foundation of public policy; policycoordination; productive public input; multiple equilibria; bifurcation; spatial economicgrowth; stability of spatial equilibrium; global public input (search for similar items in EconPapers)
JEL-codes: E60 H10 O40 R50 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-mac
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https://www.econstor.eu/bitstream/10419/222926/1/1726607240.pdf (application/pdf)
Related works:
Journal Article: Institutional design and spatial (in)equality — The Janus face of economic integration (2022)
Working Paper: Institutional design and spatial (in)equality: The Janus face of economic integration (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kitwps:142
DOI: 10.5445/IR/1000122442
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