Productive public input, integration and agglomeration

This paper analyzes, within a regional growth model, the impact of a productive governmental input and integration on the spatial distribution of economic activity. In doing so, two benchmark cases (i) equal distribution, and (ii) agglomeration in the sense of a core–periphery structure as well as the corresponding transition processes are discussed. Integration is understood as enhancing inter-territorial cooperation and it describes the extent to which one region may benefit from the other region's public input. Both integration and the characteristics of the public input crucially affect whether or not agglomeration arises and hence to which extent economic activity is concentrated. Key results are: Intensifying integration reduces the strengths of agglomeration forces and the corresponding degree of concentration will be lower. Relative congestion leads to an overestimation of capital returns and capital growth in the core region is faster due to congestion thereby leading to suboptimally high concentration.

Research Highlights►Integration and the characteristics of the public input determine whether or not a core–periphery structure occurs. ►Integration facilitate access of the periphery region to the public input of the core region. Dispersion forces are intensified. ►Relative congestion increases economic growth in the core region. Agglomeration forces are strengthened. ►Congestion induces a negative externality in capital accumulation, hence concentration in the dynamic market equilibrium is suboptimally high.