A model of spatial flows and growth of capital and labor stocks (Q800211)

The subject of this paper is an extension of the well-known Ramsey-model from the theory of economic growth by spatial components. Current stocks of capital and labour can be transferred in space from locations where they are less needed to locations where they are more needed. However, relocation uses up resources, and this must be weighted against the benefits of transfer. The objective is to maximize per capita consumption aggregated over individuals, space and time. The mathematical model is a problem of calculus of variations. The necessary conditions for optimum are derived as Euler equations with nice economic interpretation. The Lagrangian multipliers of the constraints are interpreted as imputed wages and commodity prices. Per capita consumption and the production arrangements depend on these imputed wages and prices and can be determined as solutions of dependent non-linear partial differential equations.