International Aspects of Public Infrastructure Investment

Abstract

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, in general, the equilibrium levels of infrastructure are not optimal from a global perspective. Utilizing an appropriate econometric framework and data from 16 European countries over the period 1987-95, we find evidence that is consistent with the predictions of our model.

JEL Classification: F10, F42, H42