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Public goods production and private sector productivity

Eva Benedicte Danielsen Norman ()
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Eva Benedicte Danielsen Norman: Samfunns- og Næringslivsforskning, Postal: SNF, Breiviksveien 40, N-5045 Bergen, Norway

No 17/2010, Discussion Paper Series in Economics from Department of Economics, Norwegian School of Economics

Abstract: In this paper we study how the use of resources in the public sector affects industrial structure, the size and the productivity in knowledge-intensive clusters in local communities. We also discuss how these considerations should be implemented in costbenefit assessments of local public goods supply. The topics are studied in a setting where there are gains from agglomeration in knowledge-intensive industries, creating clusters of firms in such industries. We find that the primary effect is a Rybczynski effect: If production in the public sector is knowledge-intensive, the size of the knowledge-intensive private industry declines when the public sector increases its production. If, on the other hand, public sector production uses relatively much unskilled labour, increased public goods production leads to higher production in the knowledge-intensive private industries. Private sector productivity is affected in the same way as production: If production in the knowledgeintensive industry increases, so does its productivity due to agglomeration effects; leading to higher wages for highly skilled labour.

Keywords: Agglomeration; external economies of scale; firm location; production cost; regional government policies. (search for similar items in EconPapers)
JEL-codes: D24 H00 R00 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cse and nep-eff
Date: 2010-08-17
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