Wealth Breeds Decline: Reversals of Leadership and Consumption Habits

Carmen Camacho, David de la Croix and Lionel Artige
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Lionel Artige: CREPP - Center of Research in Public Economics and Population Economics - ULiège - Université de Liège = University of Liège = Universiteit van Luik = Universität Lüttich

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

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 neces- sary investment in knowledge to remain the leader. This gives the other region a window of opportuni- ty to gain economic primacy. The theory suggests that differences across regions that have similar characteristics may persist even if physical capital flows from rich to poor regions. We study patterns of overtaking, 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)
Date: 2004-03-17
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Published in Journal of Economic Growth, 2004, 9, pp.423-449

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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 (2003)
Working Paper: Wealth breeds decline: Reversals of leadership and consumption habits (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-00683805

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