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.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Acemoglu, D., S. Johnson, and J. Robinson. (2002). ''Reversal of Fortune:Geography and Institutions in the Making of the Modern World Income Distribution.''Quarterly Journal of Economics 117(4), 1231–1294.
Bairoch, P. (1991). Cities and Economic Development:From the Dawn of History to the Present. Chicago: University of Chicago Press.
Bairoch, P., J. Batou, and P. Chèvre. (1988). The population of European Cities from 800 to 1850. Genève: CIEH.
Barro, R., and X. Sala-I-Martin. (1991). ''Convergence Across States and Regions.''Brookings Papers on Economic Activity 1, 107–158.
Bockstette, V., A. Chanda, and L. Putterman. (2002). ''States and Markets:The Advantage of an Early Start, ''Journal of Economic Growth 7(4), 347–369.
Brezis, E., P. Krugman, and D. Tsiddon. (1993). ''Leapfrogging in International Competition:A Theory of Cycles in National Technological Leadership, ''American Economic Review 83(5), 1211–1219.
Buiter, W. (1981). ''Time Preference and International Lending and Borrowing in an Overlapping Generations Model, ''Journal of Political Economy 89, 769–795.
Burke, P. (1974). Venice and Amsterdam, a Study of Seventeenth Century Elites. London: Temple Smith.
Clark, A., A. Oswald, and P. Warr. (1996). ''Is job satisfaction U-shaped in age?''Journal of Occupational and Organizational Psychology 69(1), 57–81.
de la Croix, D. (1998). ''Growth and the Relativity of Satisfaction, ''Mathematical Social Sciences 36(2), 105–125.
de la Croix, D. (2001). ''Growth Dynamics and Education Spending:The Role of Inherited Tastes and Abilities, ''European Economic Review 45(8), 1415–1438.
de la Croix, D. and P. Michel. (2002). A Theory of Economic Growth:Dynamics and Policy in Overlapping Generations. Cambridge: Cambridge University Press.
De Vries, J. and A. Van Der Woude. (1997). The First Modern Economy:Success, Failure, and Perseverance of the Dutch Economy, 1500–1815. Cambridge: Cambridge University Press.
Desmet, K. (2002). ''A Simple Dynamic Model of Uneven Development and Overtaking, ''Economic Journal 112(482), 894–918.
Dijk, H.V. and D. Roorda. (1971). ''Sociale Mobiliteit Onder Regenten van de Republiek, ''Tijdschrift voor Geschiedenis 84(2), 306–328.
Engerman, S. and K. Sokolo. (2002). ''Factor Endowments, Inequality, and Paths of Development Among New World Economies, ''Working Paper 9259, NBER.
Epstein, S. (2000). Freedom and Growth:The Rise of States and Markets in Europe, 1300–1750. London: Routledge.
Galor, O. (1996). ''Convergence?Inferences from Theoretical Models, ''Economic Journal 106 (437), 1056–1069.
Galor, O. and O. Moav. (2002). ''Natural Selection and the Origin of Economic Growth, ''Quarterly Journal of Economics 117(4), 1133–1192.
Galor, O. and D. Weil. (2000). ''Population, Technology, and Growth:From the Malthusian Regime to the Demographic Transition and Beyond, ''American Economic Review 90(4), 806–828.
Galor, O., O. Moav, and D. Vollrath. (2002). ''The Origin of Divergence and Overtaking in the Growth Process:Theory and Evidence, CEPR Discussion Paper No. 3817.''
Gibbon, E. (1788). The History of the Decline and Fall of the Roman Empire. London: A. Strahan and Cadell.
Hansen, G. and E. Prescott. (2002). ''Malthus to Solow, ''American Economic Review 92(4), 1205–1217.
Henderson, V. (2003). ''The Urbanization Process and Economic Growth:The So-what Question, '' Journal of Economic Growth 8(1), 47–71.
Kindleberger, C. (1996). World Economic Primacy 1500–1990. New York: Oxford University Press.
Lagerloef, N.P. (2004). ''Regional Income Gap in the USA Today-What can Geography and Slavery Explain?''paper presented at the SED conference, Florence.
Landes, D. (1998). The Wealth and Poverty of Nations. London: Little, Brown and Company.
Maddison, A. (1995). Monitoring the World Economy 1820–1992. Paris: OECD.
Mokyr, J. (2002). Gifts of Athena:Historical Origins of the Knowledge Economy. Princeton, NJ: Princeton University Press.
Mountford, A. (1996). ''Gradual Convergence Under Perfect International Capital Mobility, ''Working Paper 9633, Southampton.
Ottaviano, G., T. Tabuchi, and J.-F. Thisse. (2002). ''Agglomeration and Trade Revisited, ''International Economic Review 43(2), 409–435.
Pommeranz, K. (2000). The Great Divergence. Europe, China, and the Making of the Modern World Economy. Princeton: Princeton University Press.
Rappaport, J., and J. Sachs. (2003). ''The United States as a Coastal Nation, ''Journal of Economic Growth 8(1), 5–46.
Ruelle, D. (1989). Elements of Di. erentiable Dynamics and Bifurcation Theory. New York: Academic Press.
Schiavone, A. (2000). The End of the Past:Ancient Rome and the Modern West. Cambridge Mass.: Harvard University Press.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Artige, L., Camacho, C. & De La Croix, D. Wealth Breeds Decline: Reversals of Leadership and Consumption Habits. Journal of Economic Growth 9, 423–449 (2004). https://doi.org/10.1007/s10887-004-4542-5
Issue Date:
DOI: https://doi.org/10.1007/s10887-004-4542-5