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Spatial Growth: The Distribution of Capital across Locations when Saving Rates are Exogenous

Listed author(s):
  • Anastasios Xepapadeas
  • Athanasios Yannacopoulos
  • Andreas Ioannidis

Economic growth has traditionally been analyzed in the temporal domain, while the spatial dimension is captured by cross-country income differences. Data suggest great inequality in income per capita across countries, with a slight but noticeable increase over time (Acemoglu 2009). Seeking to explore the mechanism underlying the temporal evolution of the cross sectional distribution of economies, we develop a spatial growth model where saving rates are exogenous. Capital movements across locations are governed by having capital moving towards locations of relatively higher marginal productivity, with a velocity determined by the existing stock of capital and its marginal productivity. This mechanism leads to a capital accumulation equation augmented by a nonlinear diffusion term, which characterizes spatial movements. Our results suggest that under diminishing returns, the growth process leads to a stable spatially non-homogenous distribution for per capita capital and income in the long run. AK production functions and increasing returns lead to strong persistent and increasing concentration of capital in a very few locations. Insufficient savings may lead to the emergence of poverty cores where capital stock is depleted in some locations.

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File URL: http://wpa.deos.aueb.gr/docs/Spatial.Growth.The.Distribution.of.Capital.across.Locations.pdf
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Paper provided by Athens University of Economics and Business in its series DEOS Working Papers with number 1412.

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Date of creation: 08 Nov 2014
Handle: RePEc:aue:wpaper:1412
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