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Satiation and underdevelopment

  • Funk, Peter

In this article we show, how absolute poverty and per capital growth can be sustained simultaneously in a fully integrated world economy. Poverty persists due to an endogenously sustained bias in the direction of technological change. We show in an example framework, that if free trade is opened up too early between an initially less developed and a more developed country, then part of the population of the initially less advanced country is caught in a poverty trap. If, on the other hand, individuals are restricted to trade within their own economy for a sufficiently long time, no poverty trap arises. The essential assumption is that once a person has satisfied his basic needs, he prefers high-quality commodities to low-quality commodities.

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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 57 (1998)
Issue (Month): 2 ()
Pages: 319-341

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Handle: RePEc:eee:deveco:v:57:y:1998:i:2:p:319-341
Contact details of provider: Web page: http://www.elsevier.com/locate/devec

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  1. Funk Peter, 1995. "Bertrand and Walras Equilibria in Large Economies," Journal of Economic Theory, Elsevier, vol. 67(2), pages 436-466, December.
  2. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Industrialization and the Big Push," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1003-26, October.
  3. Rodriguez-Clare, Andres, 1996. "The division of labor and economic development," Journal of Development Economics, Elsevier, vol. 49(1), pages 3-32, April.
  4. Barro, Robert J & Mankiw, N Gregory & Sala-i-Martin, Xavier, 1995. "Capital Mobility in Neoclassical Models of Growth," American Economic Review, American Economic Association, vol. 85(1), pages 103-15, March.
  5. Novshek, William & Sonnenschein, Hugo, 1978. "Cournot and Walras equilibrium," Journal of Economic Theory, Elsevier, vol. 19(2), pages 223-266, December.
  6. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May.
  7. Flam, Harry & Helpman, Elhanan, 1987. "Vertical Product Differentiation and North-South Trade," American Economic Review, American Economic Association, vol. 77(5), pages 810-22, December.
  8. Ciccone, Antonio & Matsuyama, Kiminori, 1996. "Start-up costs and pecuniary externalities as barriers to economic development," Journal of Development Economics, Elsevier, vol. 49(1), pages 33-59, April.
  9. Young, Alwyn, 1991. "Learning by Doing and the Dynamic Effects of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 369-405, May.
  10. Markusen, James R, 1986. "Explaining the Volume of Trade: An Eclectic Approach," American Economic Review, American Economic Association, vol. 76(5), pages 1002-11, December.
  11. Stokey, Nancy L, 1991. "Human Capital, Product Quality, and Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 587-616, May.
  12. Kiminori Matsuyama, 1990. "Increasing Returns, Industrialization and Indeterminacy of Equilibrium," Discussion Papers 878, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Kiminori Matsuyama, 1991. "Agricultural Productivity, Comparative Advantage and Economic Growth," NBER Working Papers 3606, National Bureau of Economic Research, Inc.
  14. Eswaran, Mukesh & Kotwal, Ashok, 1993. "A theory of real wage growth in LDCs," Journal of Development Economics, Elsevier, vol. 42(2), pages 243-269, December.
  15. Zilibotti, Fabrizio, 1995. "A Rostovian model of endogenous growth and underdevelopment traps," European Economic Review, Elsevier, vol. 39(8), pages 1569-1602, October.
  16. Barham, V. & Boadway, R. & Marchand, M. & Pestieau, P., . "Education and the poverty trap," CORE Discussion Papers RP -1173, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  17. Ljungqvist, Lars, 1993. "Economic underdevelopment : The case of a missing market for human capital," Journal of Development Economics, Elsevier, vol. 40(2), pages 219-239, April.
  18. Kevin M. Murphy & Andrei Shleifer & Robert Vishny, 1988. "Income Distribution, Market Size, and Industrialization," NBER Working Papers 2709, National Bureau of Economic Research, Inc.
  19. Birdsall, Nancy, 1988. "Economic approaches to population growth," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 1, chapter 12, pages 477-542 Elsevier.
  20. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc.
  21. Nancy L. Stokey, 1989. "The Volume and Composition of Trade Between Rich and Poor Countries," Discussion Papers 849, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  22. Funk,Peter, 1993. "The direction of technological change," Discussion Paper Serie A 393, University of Bonn, Germany.
  23. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  24. Brian Copeland & Ashok Kotwal, 1997. "Quality-biased technical progress and North-South trade," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 6(1), pages 1-14.
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