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Satiation and Underdevelopment

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  • Funk, P.

Abstract

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.

Suggested Citation

  • Funk, P., 1997. "Satiation and Underdevelopment," DELTA Working Papers 97-24, DELTA (Ecole normale supérieure).
  • Handle: RePEc:del:abcdef:97-24
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    References listed on IDEAS

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    Cited by:

    1. Choi, Yo Chul & Hummels, David & Xiang, Chong, 2009. "Explaining import quality: The role of the income distribution," Journal of International Economics, Elsevier, vol. 78(2), pages 293-303, July.
    2. Peter Funk, 2005. "Competition and Growth in a Vintage Knowledge Model," Working Paper Series in Economics 15, University of Cologne, Department of Economics.
    3. Funk, Peter, 2008. "Entry and growth in a perfectly competitive vintage model," Journal of Economic Theory, Elsevier, vol. 138(1), pages 211-236, January.
    4. Funk, Peter & Vogel, Thorsten, 2004. "Endogenous skill bias," Journal of Economic Dynamics and Control, Elsevier, vol. 28(11), pages 2155-2193, October.
    5. Grüner, Hans Peter, 2008. "Capital Markets, Information Aggregation and Inequality: Theory and Experimental Evidence," CEPR Discussion Papers 6750, C.E.P.R. Discussion Papers.
    6. Yo Chul Choi & David Hummels & Chong Xiang, 2006. "Explaining Import Variety and Quality: The Role of the Income Distribution," NBER Working Papers 12531, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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