THE DIFFUSION OF ECONOMIC ACTIVITY ACROSS SPACE: A NEW APPROACH

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 p...

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Bibliographic Details
Published in:Macroeconomic dynamics 2022-07, Vol.26 (5), p.1375-1422
Main Authors: Camacho, Carmen, Pérez-Barahona, Agustín
Format: Article
Language:English
Subjects:
Economic activity
Economic growth
Economic theory
Economics and Finance
Humanities and Social Sciences
Land use planning
Macroeconomics
Mobility
Partial differential equations
Pollutants
Variables
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Summary: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.
ISSN:1365-1005
1469-8056
DOI:10.1017/S1365100520000590