Abstract:

In a regional economy, many people can be mobile thanks to readily available transportation. This
results in high concentrations of people in one region. Since such agglomerations are not uniform, some
people remain in other regions. This paper examines the issues of regional public investment policy
across such regions. When people are imperfectly mobile, what is their optimal allocation?
An optimal policy depends on workers who cannot migrate into low productivity regions. If the
number of such workers is sufficiently low, public investment should be concentrated in one region
with scale economies. When that number is large enough, it may be expected that the optimal policy
would be an infrastructure policy. However, it is not always optimal for the government to provide
public investment to a low productivity region. Thus, it makes sense that public investment should be
concentrated in high productivity regions in most cases.