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Evolutionary dynamics of poverty traps

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  • Edgar J. Sanchez Carrera

    (The University of Urbino Carlo Bo)

Abstract

Standard growth theory teaches us that poverty traps are stable-low level balanced growth paths to which economies gravitate due to adverse initial conditions or poor equilibrium selection. In other words, societies fail to take off into sustained growth because they started poor, or because they cannot create institutions that coordinate their investments successfully. This paper explains this pernicious form of coordination failure as an evolutionary game between firms and workers. Rates of return of innovative firms depend on average skilled workers, and rates of return on skilled workers depend on aggregate innovative firms’ investments. So, in poor economies with a large fraction of unskilled workers or non-innovative firms, imitative strategies do not support a take-off into sustained growth. To achieve that take-off, the society should subsidize the cost of education and/or skill premia through a tax system on income until the economy builds a critical mass of high-profile economic agents.

Suggested Citation

  • Edgar J. Sanchez Carrera, 2019. "Evolutionary dynamics of poverty traps," Journal of Evolutionary Economics, Springer, vol. 29(2), pages 611-630, April.
    • Handle: RePEc:spr:joevec:v:29:y:2019:i:2:d:10.1007_s00191-018-0575-3
    DOI: 10.1007/s00191-018-0575-3
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    Cited by:

    1. Joao Paulo A. de Souza & Leopoldo Gómez‐Ramírez, 2021. "Industrialization and skill acquisition in an evolutionary model of coordination failures," Metroeconomica, Wiley Blackwell, vol. 72(4), pages 849-867, November.
    2. Gian Italo Bischi & Federico Favaretto & Edgar J. Sanchez Carrera, 2022. "Long-term causes of populism," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 17(1), pages 349-377, January.
    3. Sanchez-Carrera Edgar J. & Travaglini Giuseppe & Ille Sebastian, 2021. "Macrodynamic Modeling of Innovation Equilibria and Traps," The B.E. Journal of Macroeconomics, De Gruyter, vol. 21(2), pages 659-694, June.
    4. Stefano Dughera & Alain Marciano, 2020. "Altruism, predation and the Samaritan's dilemma," Working Papers hal-02550432, HAL.

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    More about this item

    Keywords

    Behavioral macroeconomics; Evolutionaty games and imitative behavior; Poverty traps; Strategic complementarities;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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