AFTER MAASTRICHT - PUBLIC-INVESTMENT, ECONOMIC-INTEGRATION AND INTERNATIONAL CAPITAL MOBILITY

This paper studies some implications of economic integration in the co ntext of a neoclassical model of international trade, public investmen t and capital mobility. Owing to the endogeneity of the productive pub lic capital stock, international capital mobility, while equalizing re turns to capital, can lead to a divergence in the wages earned by labo ur. We also demonstrate that international capital mobility can set of f an 'infrastructure' investment boom. If the benefits of public capit al spill over across national borders, governments in the Nash equilib rium spend the '1992' dividend on an excessive provision of public ser vices, attempting to free-ride on the publc capital of their neighbour s.