The Regional Allocation of Public Investment: Efficiency or Equity?

Abstract

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. Copyright 2000 Blackwell Publishers

Preventing Competition because of Solidarity: Rhetoric and Reality of Airport Investments in Spain

“…Some recent works in this literature focus the attention on the traditional trade-off between equity and efficiency in public policies (Yamano and Ohkawara, 2000;de la Fuente, 2005). Our paper is more closely related to the literature that analyzes not just the efficiency-equity issue but also the role of political factors in explaining the regional allocation of public investment in infrastructure.…”

Inter-Regional Redistribution Through Infrastructure Investment: Tactical or Programmatic?

“…It would be interesting to gauge how these principles and rules were adopted, and how do they really influence the final allocation of monies to the regions. This is specially relevant in the case of infrastructure provision, because it is not entirely clear what 'objective' principles means in this case, since infrastructure investment could be directed either to regions with high project impact, following an efficiency criterion, or to regions with low output levels (to foster convergence), thus following an equity criterion (Yamano and Ohkawara, 2000;Castells and Solé-Ollé, 2005). The degree of redistribution observed in a given country depends in part on details of the constitutional contract which, as in Spain or the EU, might be the basis for the implementation of a regional cohesion policy (De la Fuente, 2004).…”

“…Rodden's paper goes one step beyond the many others that just measure (but do not explain) the interterritorial redistributive effects of government programs (see, e.g., Bayoumi and Masson, 1994;Bosch et al, 2003). The equity-efficiency trade-off of regional public investment policies has been analyzed by Yamano and Ohkawara (2000), Castells and Solé-Ollé (2005) and Stephan and Kemmerling (2009), for the cases of Japan, Spain, and several EU countries, respectively. The last two papers also include a political analysis, but confined to the tactical motives, and thus do not try to explain the political reasons of the weight given to equity and efficiency considerations.…”

The productivity of public capital: Evidence from Japan’s 1994 electoral reform

“…and Sugiura (1994), Mitsui and Ohta (1995), The Economic Planning Agency (1997), Yamano and Ohkawara (2000) and Miyara and Fukushige (2008)). …”

“…For example, Yamano and Ohkawara (2000) estimated the production function with prefecture fixed effects without year fixed effects, and the elasticity of public capital on production was estimated to be 0.15, with statistical significance. However, in our calculation with prefecture and year fixed effects based on their data, the significantly positive effect disappears.…”