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Wealth breeds decline : Reversals of leadership and consumption habits

Author

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  • Lionel, Artige

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • Carmen Camacho

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • David de la Croix

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) et CORE and FNRS Belgium)

Abstract

In a two- region model, we formalize Kindleberger’s idea that wealth breeds first more wealth, and then decline : when one region leads, its inhabitants develop consumption habits incompatible with the necessary investment in knowledge to remain the leader. This gives the other region a window of opportunity to gain economic primacy. We learn from the theoretical model that differences across regions that have similar characteristics may persist even if physical capital flows from rich to poor regions. By exploiting the economics of the Hopf bifurcation we study patterns of alternating privacy, irreversible decline and monotonic convergence, according to the initial dispersion of knowledge and the strength of consumption habits. Even though exogenous factors may matter on some occasions, we show that they are not necessary to reverse economic leadership.

Suggested Citation

  • Lionel, Artige & Carmen Camacho & David de la Croix, 2003. "Wealth breeds decline : Reversals of leadership and consumption habits," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2003009, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  • Handle: RePEc:ctl:louvir:2003009
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    References listed on IDEAS

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    Cited by:

    1. Carl-Johan Dalgaard & Holger Strulik, 2014. "Physiological Constraints and Comparative Economic Development," Discussion Papers 14-21, University of Copenhagen. Department of Economics.
    2. Matthias Doepke, "undated". "Patience Capital, Occupational Choice, and the Spirit of Capitalism," UCLA Economics Online Papers 410, UCLA Department of Economics.
    3. Bastien CHABE-FERRET, 2013. "The Importance of Fertility Norms: New Evidence from France," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2013012, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    4. David de la CROIX, 2014. "Economic Growth," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2014019, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    5. Vincenzo Lombardo, 2012. "Social inclusion and the emergence of development traps," Discussion Papers 1_2012, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
    6. Luca Gori & Mauro Sodini, 2014. "Indeterminacy and nonlinear dynamics in an OLG growth model with endogenous labour supply and inherited tastes," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 37(1), pages 159-179, April.
    7. Wozny Lukasz & Growiec Jakub, 2012. "Intergenerational Interactions in Human Capital Accumulation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 12(1), pages 1-47, June.
    8. Barnett, Richard C. & Bhattacharya, Joydeep, 2008. "Rejuveniles and growth," European Economic Review, Elsevier, vol. 52(6), pages 1055-1071, August.
    9. David Cuberes & Michał Jerzmanowski, 2009. "Democracy, Diversification and Growth Reversals," Economic Journal, Royal Economic Society, vol. 119(540), pages 1270-1302, October.
    10. Strulik, Holger, 2012. "Patience and prosperity," Journal of Economic Theory, Elsevier, vol. 147(1), pages 336-352.
    11. repec:eee:eecrev:v:101:y:2018:i:c:p:297-329 is not listed on IDEAS
    12. Vincenzo Lombardo, 2012. "Social inclusion and the emergence of development traps," Discussion Papers 13_2012, CRISEI, University of Naples "Parthenope", Italy.
    13. Matthias Doepke & Fabrizio Zilibotti, 2008. "Occupational Choice and the Spirit of Capitalism," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 747-793.
    14. Luciano Fanti, 2012. "Habits, aspirations and endogenous fertility," Discussion Papers 2012/142, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    15. repec:kap:jeczfn:v:122:y:2017:i:3:d:10.1007_s00712-017-0537-5 is not listed on IDEAS
    16. repec:ipg:wpaper:7 is not listed on IDEAS

    More about this item

    Keywords

    consumption habits; over-taking; regional primacy; capital mobility;

    JEL classification:

    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative

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