A simple dynamic model of uneven development and overtaking

Abstract

This paper extends the Brezis et al. (1993) Ricardian leapfrogging model by introducing geographically mobile capital and allowing for a wider variety of development patterns. In a two-region economy, localised learning-by-doing causes specialisation and uneven development. Technological change reverses the existing development pattern if the new technology locates in the low-wage region. However, the development pattern may also be reinforced if spillovers between the old and the new technology make the leading region a more attractive location. Capital flows are explicitly analysed and it is furthermore shown that inter-regional transfers may reduce the chance of take-off.