International Capital Mobility, Infrastructure and the Effects of Labour Migration

Globalisation, perhaps paradoxically, implies increased regionalisation: nation states come more and more to resemble regions of the global economy as international factor mobility increases. The present paper presents a new perspective on the modelling of regional economies. The fixed-cost element of public infrastructure is emphasised: this allows both the tax-base effect and congestion to be taken into account. International capital mobility is assumed, with an important distinction arising between constant-returns and increasing-returns technologies; for peripheral economies, access to the IRS technology is arguably through FDI. The paper also presents a new approach to the treatment of labour mobility. Taking Ireland as a long-standing example of a regional economy, the model is used to revisit a number of issues of practical and analytical interest.