OPTIMAL REGIONAL GROWTH AND PUBLIC INVESTMENT MODELS: THEORY AND APPLICATION TO THE EFFICIENCY-EQUITY ISSUE IN TAIWAN

Regional development planning is in nature multiobjective. The objectives themselves are always embedded in conflict. The traditional regional growth models based on optimal control theory (regional growth control models) dealing only with a single objective is obviously inappropriate. Yet, in the traditional regional growth control models it is assumed that the growth equations have Harrod-Domar framework. No attempt to the formulation of the regional growth control model with Cobb-Douglas (C-D) framework has been made due to its difficulty in obtaining closed form solutions. This study is primarily an exercise in the formulation and implementation of the multiobjective regional growth control models. The relationship between aggregate efficiency and interregional equity has been a controversial issue. This study puts an emphasis on the empirical analysis of this EEQ relationship based on the Taiwan's data. In addition, some experiments regarding various planning issues are performed and their policy implications are discussed. To implement this model, a specification and estimation of the aggregate regional production function have been presented. Several related hypotheses are also tested. It has been shown that the regional production functions do indeed differ among regions in Taiwan. The experiments have shown that the singular controls do possibly exist in certain cases of multiobjective and C-D framework models. All experiments consistently show there exists a tradeoff between aggregate efficiency and interregional equity, not only in the short term but also in the long term. Moreover, the efficiency loss is shown to diminish when the planning horizon for achieving interregional equity is increased. It indicates that government intervention to equalize spatial income distribution in the short time period is indeed costly. It has also been demonstrated that the shorter time path to reach a given planning target is to pursue efficiency first and equity later. This finding implies that a tolerance of spatial inequity in the beginning stage of development may be required if a rapid overall economic growth is to be maintained.