Mobile Capital, Local Externalities, and Industrialization.

This paper seeks to understand how industrialization is distributed geographically when capital is mobile and labor is not. A stylized model of a spatial economy is constructed where individuals not employed in industry work in traditional activities. Results show that convergence across locations is characterized by a succession of catching-up episodes. As one location at a time industrializes, the others stagnate. This occurs whether or not local externalities are present. These results cast doubt on whether free movements of capital can foster the rapid industrialization of all countries and regions of the world simultaneously. (c) 1997 Academic Pres