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.