On the Provision of International Public Goods in Dynamic Open Economies

ABSTRACT This study develops a dynamic two‐country model with an international public good, the stock of which positively affects the productivity of the private‐goods sectors in each country, and the evolution of the stock is determined by each country's voluntary contribution in the form of public investment. Two scenarios are examined: A cooperative solution, in which the countries maximize global welfare, and a noncooperative equilibrium, in which each country maximizes its own welfare. This study examines how globalization affects the countries' contribution levels, the stock of the international public good, and welfare. The country that makes more efficient contributions (i.e., higher productivity of public investment) has a comparative advantage in the good that is more sensitive to the stock of the international public good. In the noncooperative equilibrium, free trade leads to a higher steady‐state stock of the international public good than autarky. Furthermore, in both cooperative and noncooperative scenarios, the country with lower contribution efficiency unambiguously benefits from globalization, whereas the country with higher contribution efficiency may experience welfare losses.