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Wealth breeds decline: reversals of leadership and consumption habits

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Artige, Lionel [UCL] Camacho Pérez, Maria del Carmen [UCL] de la Croix, David [UCL]

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. 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.

Document type Article de périodique (Journal article)
Access type Accès restreint
Publication date 2004
Language Anglais
Journal information "Journal of Economic Growth" - Vol. 9, no. 4, p. 423-449 (Décembre 2004)
Peer reviewed yes
Publisher Springer New York LLC (New York, USA)
issn 1381-4338
Publication status Publié
Affiliations UCL - ESPO/ECON - Département des sciences économiques
UCL - ESPO/ECON - Département des sciences économiques
UCL - EUEN/CORE - Center for operations research and econometrics
Keywords Consumption habits ; Over-taking ; Regional primacy ; Capital mobility
Links
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Bibliographic reference Artige, Lionel ; Camacho Pérez, Maria del Carmen ; de la Croix, David. Wealth breeds decline: reversals of leadership and consumption habits. In: Journal of Economic Growth, Vol. 9, no. 4, p. 423-449 (Décembre 2004)
Permanent URL http://hdl.handle.net/2078.1/23520