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An Empirical Test of the Poverty Traps Hypothesis

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  • Francisco Rodríguez

    ()
    (Department of Economics, 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 collapses 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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Bibliographic Info

Paper provided by Wesleyan University, Department of Economics in its series Wesleyan Economics Working Papers with number 2008-005.

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Length: 26 pages
Date of creation: Jul 2008
Date of revision:
Handle: RePEc:wes:weswpa:2008-005

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  1. Matsuyama, Kiminori, 1991. "Increasing Returns, Industrialization, and Indeterminacy of Equilibrium," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(2), pages 617-50, May.
  2. 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.
  3. Sweta Chaman Saxena & Valerie Cerra, 2005. "Growth Dynamics," IMF Working Papers 05/147, International Monetary Fund.
  4. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Industrialization and the Big Push," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(5), pages 1003-26, October.
  5. Bloom, David E & Canning, David & Sevilla, Jaypee, 2003. " Geography and Poverty Traps," Journal of Economic Growth, Springer, vol. 8(4), pages 355-78, December.
  6. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 103(3), pages 441-63, August.
  7. Sanjay Reddy & Camelia Minoiu, 2009. "Real Income Stagnation of Countries 1960-2001," Journal of Development Studies, Taylor & Francis Journals, vol. 45(1), pages 1-23.
  8. 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.
  9. Ricardo Hausmann & Francisco Rodríguez & Rodrigo Wagner, 2006. "Growth Collapses," Wesleyan Economics Working Papers 2006-024, Wesleyan University, Department of Economics.
  10. Jeffrey D. Sachs & Wing Thye Woo, 1997. "Understanding China's Economic Performance," NBER Working Papers 5935, National Bureau of Economic Research, Inc.
  11. Valerie Cerra & Sweta C. Saxena, 2005. "Growth Dynamics: The Myth of Economic Recovery," Macroeconomics, EconWPA 0508008, EconWPA.
  12. Quah, Danny T, 1996. "Twin Peaks: Growth and Convergence in Models of Distribution Dynamics," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 106(437), pages 1045-55, July.
  13. Laitner, John, 2000. "Structural Change and Economic Growth," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 67(3), pages 545-61, July.
  14. Kraay, Aart & Raddatz, Claudio, 2005. "Poverty traps, aid, and growth," Policy Research Working Paper Series 3631, The World Bank.
  15. Danny Quah, 1996. "Twin Peaks: Growth and Convergence in Models of Distribution Dynamics," CEP Discussion Papers dp0280, Centre for Economic Performance, LSE.
  16. 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.
  17. 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.
  18. Stephen L. Parente & Edward C. Prescott, 2002. "Barriers to Riches," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661306, December.
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