Public Investment Strategies for Regional Development: An Analysis Based on Optimization and Sensitivity Results

Two strategies for regional development are analyzed: one with an emphasis on public investment in the region's infrastructure and the other with an emphasis on public investment in education and training, A growth model is presented which includes the effects of these public investment policy variables on productivity, private investment, and migration. Alternative public investment strategies are evaluated using a social welfare function. Optimization results indicate that a heavy emphasis on education and training is a better strategy, at least for the specific problem considered. The sensitivity of the policy variables is investigated with respect to model parameter values, the region's initial state, the tradeoff weights in the social welfare function, and the assumption that key model parameters are nonrandom. Assuming that a parameter is random implies the result that public investment in infrastructure should be slightly increased from a low nominal level.