Governmental activity, integration, and agglomeration
This paper analyzes, within a regional growth model, the impact of productive governmental policy
and integration on the spatial distribution of economic activity. Integration is understood as enhancing
territorial cooperation between the regions, and it describes the extent to which one region may benefit
from the other region's public input, e.g. the extent to which regional road networks are connected.
Both integration and the characteristics of the public input crucially affect whether agglomeration
arises and if so to which extent economic activity is concentrated: As a consequence of enhanced
integration, agglomeration is less likely to arise and concentration will be lower. Relative congestion
reinforces agglomeration, thereby increasing equilibrium concentration. Due to the congestion
externalities, the market outcome ends up in suboptimally high concentration.