Strategic Policy Competition with Public Infrastructure

Richard Nahuis and P.J.G. Tang

No 04-24, Working Papers from Utrecht School of Economics

Abstract: Governments try to attract firms and jobs by investing in international infrastructure. We analyse this type of strategic policy competition in a three-country model of monopolistic competition. What governments compete for, is to obtain a so called ‘hub’ position. A hub is a relatively well connected location in a transport network. A hub might thus be an attractive location for firms. However, for a small or backward country the hub position, due to infrastructure investment, is overwhelmed by the disadvantage of a small home-market. As investment to become a hub triggers an investment response from other countries, a backward country is unlikely to keep its relatively attractive position. An attractive location is only sustainable if investment applies to point infrastructure and builds upon a natural advantage (e.g. an harbour). The game of action and reaction delivers socially undesirably high levels of infrastructure investment if transport costs are already low and firm mobility is high.

Keywords: Infrastructure; Industrial Location; Policy Competition; Monopolistic Competition; International Trade (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-net, nep-pbe and nep-ure
References: Add references at CitEc
Citations:

Downloads: (external link)
https://dspace.library.uu.nl/bitstream/handle/1874/275116/04-24.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:use:tkiwps:0424

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers from Utrecht School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Marina Muilwijk ().