Abstract
A dynamic model of capital flow between regions, the parameters of which are estimated for the United States and Canada, is characterized by alternating decreasing and increasing returns to scale; the existence of both stable and unstable equilibria is shown. Unstable equilibria can lead to rapid growth or depletion of regional capital stock. Destabilizing political events in Canada during the late 1970s and early 1980s may have been instrumental in leading North America into a high interest rate equilibrium trap accompanied by rapid outflow of investment capital from Canada to the United States.
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