Political Economy of Infrastructure Investment: A Spatial Approach

Kieron Meagher and Arghya Ghosh

No 561, Econometric Society 2004 North American Summer Meetings from Econometric Society

Abstract: The importance of infrastructure for growth is well established in the macroeconomic literature. Previous research has treated public investment in infrastructure as exogenous. We remedy this shortcoming by providing a political economy analysis of infrastructure choice based upon consumer preferences derived from spatial competition models. The transport cost parameter providesa natural index of infrastructure in these models. In this setting, infrastructure investment has two possible effects: to directly lower transaction costs and indirectly to affect market power. We begin with a single marketplace model in which only the direct effect is present and then bring in the indirect effect by extending the analysis to competition on the circle. Analysis of market structure, consumer participation, entry and transport cost curvature give a rich variety of results. Socially optimal outcomes occur in some cases but infrastructure traps are common. Our results suggest that in less developed countries competition enhancing policies are a key prerequisite for public support of infrastructure investment

Keywords: Spatial Competition; Political Economy; Market Structure; Infrastructure Investment; Voting (search for similar items in EconPapers)
JEL-codes: D72 H54 L13 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-com and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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