Effective demand creation due to the public investment is important factor for the activation of regional economy. This effect is called the flow effect of the project. The purpose of this paper is in analyzing how much effective demand can be created by the public investment project in the region. For this purpose, I improve the regional I/O model classified by road construction project, sewer and park construction project and agricultural and forestry development project. And I calculate the amount of production and the number of workers caused by the execution of each project. The results are as follows.
At first, as shown in the inverse matrix coefficients, if we ignored the land and compensation fee rate and the regional distributive conditions of the budget, the effect of each public investment project becomes almost same level. But by the kind of project, there are some differences in land and compensation fee rate, and in regional distributive conditions of the budget. Due to these differences, the flow effect varies in the kind of project and the region. For example, this effect of sewer and park construction project is remarkable in the urban prefecture, and this effect of agricultural and forestry development project is biggest in the rural prefecture. The road construction project has little effect in both of the urban and the rural prefecture, compared with other projects.
Secondly, in all kinds of public investment project, not only the local project induces the production inthe rural prefecture but also it induces the production in the urban prefecture, through out the industrial structure. In agricultural and forestry development project, the amount of production that flows from the rural prefecture to the urban prefecture is more about 10% of the whole. Other most parts influence the rural economy.
