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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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    References listed on IDEAS

    as
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    Cited by:

    1. Levin, Simon & Xepapadeas, Anastasios, 2015. "Transboundary Capital and Pollution Flows and the Emergence of Regional Inequalities," Climate Change and Sustainable Development 206869, Fondazione Eni Enrico Mattei (FEEM).

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    More about this item

    Keywords

    Economic growth; space; capital flows; nonlinear diffusion; Solow model; steady-state distributions; stability;
    All these keywords.

    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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