Working Paper : 1412


Authors Xepapadeas, A., Yannacopoulos, A. and Ioannidis, A.
Title Spatial Growth: The Distribution of Capital across Locations when Saving Rates are Exogenous
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.
Creation Date 2014-11-08
Keywords Economic growth, space, capital flows, nonlinear diffusion, Solow model, steady-state distributions, stability
Classification JEL O4, R1, C6
File Spatial.Growth.The.Distribution.of.Capital.across.Locations.pdf (585883 bytes)
File-Function First version

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