International Economics Commons^™

Openness, Lobbying, And Provision Of Infrastructure, Ujjayant N. Chakravorty, Joy Mazumder

Ujjayant Chakravorty

Casual empirical evidence suggests that infrastructure provision is higher in economies that are open to world trade. We develop a model of imperfect competition to show that open economies are likely to provide more infrastructure than closed economies. If infrastructure is financed by taxing a producer lobby, the open economy will overprovide while the closed economy will underinvest; an open economy approaches optimal provision when this lobby group is small in size. If financing of infrastructure is done by taxing the whole population, the closed-economy outcome may be preferred relative to that of the open economy.