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An Empirical Test of the Poverty Traps Hypothesis

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  • Francisco Rodríguez

    ()
    (Assistant Professor of Economics and Latin American Studies, Wesleyan University)

Abstract

This paper presents an empirical test of a subclass of poverty traps hypotheses. The test is based on the observation that the nonconvexities in the production function necessary to generate multiple equilibria need only be present in the region between the equilibria. Increasing returns should therefore be strongest when the economy is transitioning between steady states than when it is at or near one of those steady states. I implement this idea by estimating the degree of increasing returns during growth accelerations and growth transitions for a panel of developing and developed economies using UNIDO's Database of Industrial Statistics. I find no evidence of systematic differences in economies of scale between transition and non-transition episodes, shedding doubt on the idea that increasing returns in manufacturing generate poverty traps. (...)

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File URL: http://www.ipc-undp.org/pub/IPCTechnicalPaper4.pdf
File Function: First version, 2008
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Bibliographic Info

Paper provided by International Policy Centre for Inclusive Growth in its series Publications with number 4.

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Length: 22
Date of creation: Aug 2008
Date of revision:
Publication status: Published by UNDP - International Poverty Centre, August 2008, pages 1-22
Handle: RePEc:ipc:pubipc:2644396

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Keywords: An Empirical Test of the Poverty Traps Hypothesis;

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  1. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1988. "Industrialization and the Big Push," NBER Working Papers 2708, National Bureau of Economic Research, Inc.
  2. Laitner, John, 2000. "Structural Change and Economic Growth," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 545-61, July.
  3. Ricardo Hausmann & Francisco Rodríguez & Rodrigo Wagner, 2006. "Growth Collapses," Wesleyan Economics Working Papers 2006-024, Wesleyan University, Department of Economics.
  4. Azariadis, Costas & Stachurski, John, 2005. "Poverty Traps," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 5 Elsevier.
  5. Kraay, Aart & Raddatz, Claudio, 2007. "Poverty traps, aid, and growth," Journal of Development Economics, Elsevier, vol. 82(2), pages 315-347, March.
  6. Valerie Cerra & Sweta Chaman Saxena, 2007. "Growth dynamics: the myth of economic recovery," BIS Working Papers 226, Bank for International Settlements.
  7. Stephen L. Parente & Edward C. Prescott, 2002. "Barriers to Riches," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661306, January.
  8. William Easterly, 2006. "Reliving the 1950s: the big push, poverty traps, and takeoffs in economic development," Journal of Economic Growth, Springer, vol. 11(4), pages 289-318, December.
  9. Quah, Danny, 1996. "Twin Peaks: Growth and Convergence in Models of Distribution Dynamics," CEPR Discussion Papers 1355, C.E.P.R. Discussion Papers.
  10. Sanjay G. Reddy & Camelia Minoiu, 2005. "Real Income Stagnation of Countries, 1960-2001," Development and Comp Systems 0509004, EconWPA.
  11. Reinhart, Carmen & Vegh, Carlos & Velasco, Andres, 2008. "Money, Crises, and Transition Essays in Honor of Guillermo A. Calvo: An Introduction," MPRA Paper 13232, University Library of Munich, Germany.
  12. Bloom, David E & Canning, David & Sevilla, Jaypee, 2003. " Geography and Poverty Traps," Journal of Economic Growth, Springer, vol. 8(4), pages 355-78, December.
  13. Kiminori Matsuyama, 1990. "Increasing Returns, Industrialization and Indeterminacy of Equilibrium," Discussion Papers 878, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  14. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August.
  15. Danny Quah, 1996. "Twin Peaks: Growth and Convergence in Models of Distribution Dynamics," CEP Discussion Papers dp0280, Centre for Economic Performance, LSE.
  16. Author-Name: Jeffrey D. Sachs & John W. McArthur & Guido Schmidt-Traub & Margaret Kruk & Chandrika Bahadur & Michael Faye & Gordon McCord, 2004. "Ending Africa's Poverty Trap," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(1), pages 117-240.
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