On Patterns and Efficiency of Investment in Transport Infrastructure

Abstract

This paper develops a two-country model of intraindustry trade in which overseas shipping incurs transport costs. National governments make investment in the transport infrastructure to reduce the transport costs and enhance national welfare. This paper investigates what patterns of public investment can be derived as equilibrium outcomes and whether these equilibrium investment patterns are socially efficient. It is shown that, among others, if the public investment technology exhibits increasing returns at an international level, coordination problem of public investment may occur.