Economic growth in a mixed urban economy: Infrastructure investment and labor migration

Abstract

The growth path of a mixed, open urban economy is considered which is linked to the national economy through labor flows in the direction of higher per capita consumption. In its private sector, profit maximizing firms produce output, hiring individually labor but using jointly infrastructure with public good characteristics. The public sector divides via taxation output into consumption and infrastructural investments so as to maximize the current value of future per capita felicity. Urban growth paths are derived and public sector policies regarding labor migration and provision of infrastructure are analyzed.