econ01-4.pdf (207.59 kB)
International Aspects of Public Infrastructure Investment.
reportposted on 2009-03-26, 12:20 authored by Spiros Bougheas, Panicos O. Demetriades, Edgar L.W. Morgenroth
Modelling infrastructure as an international public good in a two-country model of trade where each country’s social planner behaves strategically, we show that the equilibrium levels of infrastructure are sub-optimal from a global perspective. Utilising an appropriate econometric framework and data from 16 European countries over the period 1987-95, we find evidence that accords well with the main predictions of our theory. Thus, we are able to offer a plausible theoretical explanation why public capital may be undersupplied, as suggested by previous empirical literature.