GOVERNMENT SPENDING ON PUBLIC GOODS, SPECIALIZATION-BASED EXTERNAL ECONOMIES AND PATTERN OF TRADE

Sajid Anwar

The Singapore Economic Review (SER), 2006, vol. 51, issue 01, 19-30

Abstract: This paper examines the link between government spending on a public good and pattern of trade in the presence of specialization-based external economies. The results presented in this paper are based on a simple model of an economy that produces one industrial, one agricultural, one public good and a large number of varieties of professional services. It is shown that, when the agricultural and the public goods are non-traded, the country where government spending is relatively large is a net-exporter of varieties of professional services; if varieties of professional services are equally (or more) capital intensive as compared to the industrial good. When the public good and varieties of professional services are non-traded, the country where government spending is relatively large may export the industrial good in exchange for the agricultural good; if the combined capital intensity of professional services and the industrial good is greater than the capital intensity of the agricultural good and the size of specialization-based external economies is sufficiently small.

Keywords: Government spending on public goods; specialization-based external; economies; pattern of trade (search for similar items in EconPapers)
Date: 2006
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DOI: 10.1142/S0217590806002202

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