The Welfare Gains of Cooperative Public Infrastructure Policies: A Trade and Supply-Side View

Rym Aloui and Aurélien Eyquem

Annals of Economics and Statistics, 2020, issue 140, 27-44

Abstract: We investigate the optimal levels of public investment in infrastructure in a two-country open-economy model with production externality and distortionary taxation. In the model, transport costs fall with local and foreign stocks of public infrastructure, but more strongly with the foreign stock. We provide empirical evidence supporting this assumption, and show that it generates sizable welfare gains from international cooperation, from 0.15% in the baseline case to more than 5% of permanent consumption under alternative calibrations. We also discuss the endogenous responses of cooperative and non-cooperative levels of public investment in infrastructure to productivity shocks.

Keywords: Public Infrastructure; Endogenous Transport Costs; International Cooperation; Open Economy. (search for similar items in EconPapers)
JEL-codes: E32 E62 F41 H54 (search for similar items in EconPapers)
Date: 2020
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Working Paper: The Welfare Gains of Cooperative Public Infrastructure Policies: A Trade and Supply-Side View (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:adr:anecst:y:2020:i:140:p:27-44

DOI: 10.15609/annaeconstat2009.140.0027

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