Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/224059 
Year of Publication: 
2020
Series/Report no.: 
Kiel Working Paper No. 2163
Publisher: 
Kiel Institute for the World Economy (IfW), Kiel
Abstract: 
This paper analyzes within a spatial endogenous growth setting the impact of public policy coordination on agglomeration. Governments in each of the two symmetric regions provide a local public input that becomes globally effective due to integration. Micro-foundation of governmental behavior is based on three different coordination schemes: autarky, full or partial coordination. Scale effects act as agglomeration force and in addition to private capital agglomeration increase the concentration of the public input. Integration promotes dispersion forces with respect to the distribution of physical capital which are based on decreasing private returns. However, within the governments' decision on the concentration of the public input, increasing integration reinforces agglomeration because it promotes the interregional productive use of the public input. Taking feedback effects between the private and the public sector into account leads to mutual reinforcement, hence agglomeration forces almost always dominate and the spreading equilibrium becomes unstable. If convergence is a separate (additional) political objective, it needs sustained additional political effort.
Subjects: 
income convergence
integration
micro foundation of public policy
policy coordination
productive public input
multiple equilibria
bifurcation
spatial economic growth
stability of spatial equilibrium
global public input
JEL: 
H10
E60
O40
R50
Document Type: 
Working Paper

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