Profitability and Growth in Multiregion Systems: Theory and a Model

Interpretations of geographic changes in production over the last 20 years have themselves drawn upon theories of global economic change. In turn those theories rely upon models of economic dynamics that rest upon unduly restrictive notions of equilibrium and that ignore space and region. This paper therefore explains a multiregion dynamic model of profitability, capital investment, and value that eschews notions of equilibrium. The model, even in its general form, demonstrates that values are spatially variable; that net flows of capital occur between regions even if rates of profit are equal; that net flows of capital do not necessarily point to higher profit locations; and that the trajectory of rates of profit depends not only upon the traditional notions of organic composition and rate of exploitation but also upon the rates of growth of demand, supply, and capital, as well as upon trade and investment policies. The next stage of this research is to use empirical observation to estimate the parameters of the model so as to illustrate its usefulness in interpreting the historical geography of production in the OECD.