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

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  • Raouf Boucekkine
  • Carmen Camacho
  • Benteng Zou

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 to derive the Pontryagin conditions. Using explicit representations of the solutions to the PDEs, we first show that the resulting dynamic system 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 obtained properties are significantly different from those of the non-spatial linear Ramsey model due to the spatial dynamics induced by capital mobility.

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Bibliographic Info

Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c011_039.

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Length: 32 pages JEL Classification: C61, C62, O41
Date of creation: Jun 2006
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Handle: RePEc:deg:conpap:c011_039

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Keywords: Ramsey model; Economic geography; parabolic equations; optimal control;

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  1. 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.
  2. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  3. 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, December.
  4. Krugman, Paul, 1993. "On the number and location of cities," European Economic Review, Elsevier, vol. 37(2-3), pages 293-298, April.
  5. 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).
  6. 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.
  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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