Reference : Wealth Breeds Decline: Reversals of Leadership and Consumption Habits
Scientific journals : Article
Business & economic sciences : Macroeconomics & monetary economics
Wealth Breeds Decline: Reversals of Leadership and Consumption Habits
Artige, Lionel mailto [Université de Liège - ULg > HEC-Ecole de gestion de l'ULg : UER > Macroéconomie >]
Camacho, Carmen [Université Catholique de Louvain - UCL > > > >]
de la Croix, David [Université Catholique de Louvain - UCL > > > >]
Journal of Economic Growth
Springer Netherlands
[en] consumption habits ; over-taking ; regional primacy ; capital mobility
[en] In a two-region model, we formalize Kindlebergerrsquos 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. 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.

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