Economic Growth, Poverty Traps, and Wealth Concentration: Riddles and Waves Driven by Unproductive Assets

This research paper studies a non-linear dynamic macroeconomic model to analyze the interactions between economic growth and the concentration of wealth driven by productive and unproductive capital or bubbly assets. The paper considers both a deterministic and a stochastic version of the model to analyze the economy's evolution, i.e., growth, poverty traps, and wealth concentration. For the deterministic case of the model, we show that poverty traps exist as a stable or unstable (saddle) steady state, depending on whether the returns to unproductive assets are positive or negative. A high-level equilibrium exists when the returns on unproductive assets are negative, but fluctuations (i.e., cycles or oscillations) may occur. For the stochastic and bubbly case, we calibrate the model, and we may conclude that the implementation of economic policies that improve the investments of capitalists in productive capital would remove the economies from the threat of a poverty trap and possible fluctuations, in addition to the fact that wealth inequality would decline in the long run.