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Wealth Breeds Decline: Reversals of Leadership and Consumption Habits

Author

Listed:
  • Carmen Camacho

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • David de La Croix

    (CORE - Department of Economics - UCL - Université Catholique de Louvain = Catholic University of Louvain)

  • Lionel Artige

    (CREPP - Center of Research in Public Economics and Population Economics - Université de Liège)

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 neces- sary investment in knowledge to remain the leader. This gives the other region a window of opportuni- ty 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.

Suggested Citation

  • Carmen Camacho & David de La Croix & Lionel Artige, 2004. "Wealth Breeds Decline: Reversals of Leadership and Consumption Habits," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00683805, HAL.
    • Handle: RePEc:hal:cesptp:hal-00683805
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    Cited by:

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    2. Matthias Doepke, "undated". "Patience Capital, Occupational Choice, and the Spirit of Capitalism," UCLA Economics Online Papers 410, UCLA Department of Economics.
    3. Bastien CHABE-FERRET, 2013. "The Importance of Fertility Norms: New Evidence from France," LIDAM Discussion Papers IRES 2013012, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    4. David de la CROIX, 2014. "Economic Growth," LIDAM Discussion Papers IRES 2014019, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    5. repec:ipg:wpaper:201407 is not listed on IDEAS
    6. Luca Gori & Mauro Sodini, 2014. "Indeterminacy and nonlinear dynamics in an OLG growth model with endogenous labour supply and inherited tastes," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 37(1), pages 159-179, April.
    7. Barnett, Richard C. & Bhattacharya, Joydeep, 2008. "Rejuveniles and growth," European Economic Review, Elsevier, vol. 52(6), pages 1055-1071, August.
    8. Strulik, Holger, 2012. "Patience and prosperity," Journal of Economic Theory, Elsevier, vol. 147(1), pages 336-352.
    9. Wozny Lukasz & Growiec Jakub, 2012. "Intergenerational Interactions in Human Capital Accumulation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 12(1), pages 1-47, June.
    10. Diodato, Dario & Malerba, Franco & Morrison, Andrea, 2018. "The made-in effect and leapfrogging: A model of leadership change for products with country-of-origin bias," European Economic Review, Elsevier, vol. 101(C), pages 297-329.
    11. Luciano Fanti & Luca Gori & Cristiana Mammana & Elisabetta Michetti, 2018. "A model of growth with inherited tastes," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 41(2), pages 163-186, November.
    12. Vincenzo Lombardo, 2012. "Social inclusion and the emergence of development traps," Discussion Papers 13_2012, CRISEI, University of Naples "Parthenope", Italy.
    13. Matthias Doepke & Fabrizio Zilibotti, 2008. "Occupational Choice and the Spirit of Capitalism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 747-793.
    14. Lombardo, Vincenzo, 2012. "Social inclusion and the emergence of development traps," MPRA Paper 36766, University Library of Munich, Germany.
    15. Kojun Hamada & Tsuyoshi Shinozaki & Mitsuyoshi Yanagihara, 2017. "Aspirations and the transfer paradox in an overlapping generations model," Journal of Economics, Springer, vol. 122(3), pages 279-301, November.
    16. Chiara Zanardello, 2023. "Market forces in Italian academia today (and yesterday)," Scientometrics, Springer;Akadémiai Kiadó, vol. 128(1), pages 651-698, January.
    17. David Cuberes & Michał Jerzmanowski, 2009. "Democracy, Diversification and Growth Reversals," Economic Journal, Royal Economic Society, vol. 119(540), pages 1270-1302, October.
    18. Vincenzo Lombardo, 2021. "Social inclusion through social status and the emergence of development traps," Metroeconomica, Wiley Blackwell, vol. 72(4), pages 798-825, November.
    19. Bouché, Stéphane & de Miguel, Carlos, 2019. "Endogenous aspirations, growth and the rise of environmental concerns," Energy Economics, Elsevier, vol. 84(S1).
    20. Akihiko Kaneko & Hideya Kato & Tsuyoshi Shinozaki & Mitsuyoshi Yanagihara, 2016. "Bequeathed tastes and fertility in an endogenous growth model," Economics Bulletin, AccessEcon, vol. 36(3), pages 1422-1429.
    21. Luciano Fanti, 2012. "Habits, aspirations and endogenous fertility," Discussion Papers 2012/142, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    22. repec:ipg:wpaper:7 is not listed on IDEAS
    23. Georg Müller Fürstenberger & Ingmar Schumacher, 2013. "Is Capital Market Integration a Remedy for the Environmental Poverty Trap?," Working Papers 2013-7, Department of Research, Ipag Business School.
    24. Jakub Growiec, 2005. "Dynamika konwergencji Polski z Unią Europejską," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 5-6, pages 101-118.

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    More about this item

    Keywords

    consumption habits; over-taking; regional primacy; capital mobility;
    All these keywords.

    JEL classification:

    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative

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