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

Anastasios Xepapadeas (), Athanasios Yannacopoulos and Andreas Ioannidis

No 1412, DEOS Working Papers from Athens University of Economics and Business

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.

Keywords: Economic growth; space; capital flows; nonlinear diffusion; Solow model; steady-state distributions; stability (search for similar items in EconPapers)
JEL-codes: O4 R1 C6 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-geo and nep-gro
Date: 2014-11-08
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