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

Author

Listed:
  • Anastasios Xepapadeas
  • Athanasios Yannacopoulos
  • Andreas Ioannidis

Abstract

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.

Suggested Citation

  • Anastasios Xepapadeas & Athanasios Yannacopoulos & Andreas Ioannidis, 2014. "Spatial Growth: The Distribution of Capital across Locations when Saving Rates are Exogenous," DEOS Working Papers 1412, Athens University of Economics and Business.
  • Handle: RePEc:aue:wpaper:1412
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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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    References listed on IDEAS

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    Cited by:

    1. Simon Levin & Anastasios Xepapadeas, 2015. "Transboundary Capital and Pollution Flows and the Emergence of Regional Inequalities," DEOS Working Papers 1512, Athens University of Economics and Business.

    More about this item

    Keywords

    Economic growth; space; capital flows; nonlinear diffusion; Solow model; steady-state distributions; stability;

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling

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