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The Regional Allocation of Public Investment: Efficiency or Equity?
Author(s) -
Yamano Norihiko,
Ohkawara Toru
Publication year - 2000
Publication title -
journal of regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.171
H-Index - 79
eISSN - 1467-9787
pISSN - 0022-4146
DOI - 10.1111/0022-4146.00172
Subject(s) - equity (law) , economics , public capital , investment (military) , productivity , capital allocation line , public investment , private investment in public equity , stock (firearms) , production (economics) , finance , microeconomics , macroeconomics , equity capital markets , profit (economics) , geography , archaeology , politics , political science , valuation (finance) , law
In this paper we examine the effect of public investment on the regional economies of Japan. The efficient policy for regional allocation of public capital is to invest in highly productive regions, whereas the actual policy pursues equity goals by allocating more public investment to depressed regions. We determine the effects of this equity‐ oriented allocation by estimating the aggregate regional production function and calculating the productivity of public capital stock for each region, using a cross‐sectional time‐series data set. Our results show that the marginal productivity of public capital has recently declined in most depressed regions, whereas the productivity in developed regions (e.g., Tokyo, Osaka) has increased slightly. We compare alternative policies of allocating public investment and their effects on the regional and national economies using numerical simulations. We then quantitatively describe the trade‐off between the efficient and the equitable allocation of public investment.