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THE DIFFUSION OF ECONOMIC ACTIVITY ACROSS SPACE: A NEW APPROACH

Published online by Cambridge University Press:  12 January 2021

Carmen Camacho  and
Agustín Pérez-Barahona
Carmen Camacho
Affiliation:
PjSE UMR8545, Paris School of Economics and CNRS (France)
Agustín Pérez-Barahona*
Affiliation:
CY Cergy Paris Université, CNRS, THEMA and Ecole Polytechnique (France)
*
Address correspondence to: Agustín Pérez-Barahona, THEMA, CY Cergy Paris Université, 33 Boulevard du Port, 95011 Cergy-Pontoise cedex, France. e-mail: agustin.perez-barahona@cyu.fr.
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Abstract

Dynamic spatial theory has been a fruitful approach to understanding economic phenomena involving time and space. However, several central questions still remain unresolved in this field. The identification of the social optimal allocation of economic activity across time and space is particularly problematic, not been ensured yet in economic growth. Developing a monotone method, we study the optimal solution of the spatial Ramsey model. Under fairly general assumptions, we prove the existence of unique social optimum. Considering a numerical implementation of our algorithm, we study the role played by capital mobility in the neoclassical growth environment. With capital irreversibility and economic openness, space allows for transitional dynamics. Moreover, in this context, capital mobility is beneficial as well in terms of social welfare and inequality. We also consider an application of our method to an extension of the spatial Ramsey model for optimal land-use planning.

Keywords

ControlSpatial DynamicsRamsey ModelPartial Differential Equations
Type
Articles
Information
Macroeconomic Dynamics , Volume 26 , Issue 5 , July 2022 , pp. 1375 - 1422
Copyright
© Cambridge University Press 2021

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Footnotes

We are thankful to Jacques Drèze, Ingmar Schumacher, Benteng Zou, and Vladimir Veliov for their comments and help. We would also like to express our gratitude to the participants at LEDa seminars (Université Paris-Dauphine), PET 2017 (Paris); EEA-ESEM 2017 (Lisboa), Atelier Methods of Economics Dynamics (Paris School of Economics), CORE@50 (Université catholique de Louvain), and Advances in Dynamic Macroeconomics (Free University of Bozen-Bolzano) for useful discussion. The Associate Editor of this Journal and two anonymous referees provided suggestions that helped to make substantial improvements to the paper. Agustín Pérez-Barahona acknowledges financial support from the Chaire Développement Durable (Ecole Polytechnique—EDF) and the Labex MME-DII.

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