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Bridging the gap between growth theory and the new economic geography: The spatial Ramsey model

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  • BOUCEKKINE, Raouf
  • CAMACHO, Carmen
  • ZOU, Benteng

Abstract

We study a Ramsey problem in infinite and continuous time and space. The problem is discounted both temporally and spatially. Capital flows to locations with higher marginal return. We show that the problem amounts to optimal control of parabolic partial differential equations (PDEs). We rely on the existing related mathematical literature toderive the Pontyagin conditions. Using explicit representations of the solutions to the PDEs, we first show that the resulting dynamic gystem gives rise to an ill-posed problem in the sense of Hadamard (1923). We then turn to the spatial Ramsey problem with linear utility. The botained properties are significantly different from those of the non-spatial linear Ramsey model dute to the spatial dynamics induced by capital mobility.

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File URL: http://dx.doi.org/10.1017/S1365100508070442
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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -2090.

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Handle: RePEc:cor:louvrp:-2090

Note: In : Macroeconomic Dynamics, 13(1) 20-45, 2009
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  1. Krugman, Paul, 1993. "On the number and location of cities," European Economic Review, Elsevier, vol. 37(2-3), pages 293-298, April.
  2. Gaines, R. E., 1976. "Existence of solutions to Hamiltonian dynamical systems of optimal growth," Journal of Economic Theory, Elsevier, vol. 12(1), pages 114-130, February.
  3. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  4. Paulo Brito, 2004. "The Dynamics of Growth and Distribution in a Spatially Heterogeneous World," Working Papers Department of Economics 2004/14, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  5. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, January.
  6. Pascal Mossay, 2003. "Increasing Returns And Heterogeneity In A Spatial Economy," Working Papers. Serie AD 2003-04, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  7. Mossay, Pascal, 2003. "Increasing returns and heterogeneity in a spatial economy," Regional Science and Urban Economics, Elsevier, vol. 33(4), pages 419-444, July.
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