Wealth breeds decline: reversals of leadership and consumption habits

Lionel Artige, Carmen Camacho and David de la Croix

No 2003054, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

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 primacy, 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.

Keywords: consumption habits; over-taking; regional primacy; capital mobility (search for similar items in EconPapers)
JEL-codes: E21 N10 O41 R11 (search for similar items in EconPapers)
Date: 2003-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Wealth Breeds Decline: Reversals of Leadership and Consumption Habits (2004)
Working Paper: Wealth breeds decline: reversals of leadership and consumption habits (2004)
Working Paper: Wealth Breeds Decline: Reversals of Leadership and Consumption Habits (2004)
Working Paper: Wealth Breeds Decline: Reversals of Leadership and Consumption Habits (2004)
Working Paper: Wealth breeds decline: Reversals of leadership and consumption habits (2003)
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