Wealth breeds decline: reversals of leadership and consumption habits

Artige, Lionel;Camacho Pérez, Maria del Carmen;De la Croix, David
(2004) Journal of Economic Growth — Vol. 9, n° 4, p. 423-449 (2004)

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Authors
  • Artige, LionelUCLouvain
    Author
  • Camacho Pérez, Maria del CarmenUCLouvain
    Author
  • De la Croix, DavidUCLouvain
    Author
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 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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Artige, L., Camacho Pérez, M. d. C., & De la Croix, D. (2004). Wealth breeds decline: reversals of leadership and consumption habits. Journal of Economic Growth, 9(4), 423-449. https://doi.org/10.1007/s10887-004-4542-5 (Original work published 2004)