Trade and the Effect of Public Investment on Regional Inequalities in Heterogeneously Integrated Areas

19 Pages Posted: 3 Jul 2005

See all articles by Joan Costa-Font

Joan Costa-Font

London School of Economics & Political Science (LSE)

Eduardo Rodriguez-Oreggia

Independent

Abstract

Regional integration, it is argued, challenges the distribution of economic activity among regions. However, the government role in shifting the patterns of regional inequalities is still under debate and has received small comprehensive empirical evidence. This paper examines the hypothesis of trade as channelling public investment and, thus, perpetuating regional inequalities. We argue that the interplay of public and private investment plays a key role in stimulating trade and economic activity. To avoid problems of cross-country heterogeneity and comparability this study examines data for two countries; Mexico and Spain, both followers of trade integration arrangements. Findings indicate that regional inequalities in Mexico are significantly explained by differences in export capacity serving to boost private investment whereas inequalities in Spain are appreciably driven by previous endowments and private capital formation.

Suggested Citation

Costa-Font, Joan and Rodriguez-Oreggia, Eduardo, Trade and the Effect of Public Investment on Regional Inequalities in Heterogeneously Integrated Areas. The World Economy, Vol. 28, No. 6, pp. 873-891, June 2005. Available at SSRN: https://ssrn.com/abstract=741825

Joan Costa-Font (Contact Author)

London School of Economics & Political Science (LSE) ( email )

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HOME PAGE: http://https://joancostaifont.org/

Eduardo Rodriguez-Oreggia

Independent ( email )

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United States

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