GEP Research Paper 01/01
Public Expenditure and International Specialisation
Marius Brülhart and Federico Trionfetti
Abstract
We study the impact of home-biased public expenditure on international specialisation in general equilibrium models with increasing returns and monopolistic competition. It is found that home-biased procurement attracts increasing-returns industries to the home country (the "pull" effect) and attenuates the overall degree of industrial specialisation (the "spread" effect). Empirical evidence based on input-output data for the European Union confirms the existence of these links between public expenditure and the location of manufacturing activities.
Issued in May 2001.
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