Increasing Returns, Industrialization and Indeterminacy of Equilibrium
This paper asks whether adjustment processes over real time help to "select" the long-run outcome in a model of industrialization, where multiple stationary states exist because of increasing returns in the manufacturing sector. "History" alone cannot, in general, determine where the economy will end up. Self-fulfilling expectations often make the escape from the state of preindustrialization (the takeoff) possible. The global bifurcation technique is used to determine when an underdevelopment trap exists and when a takeoff path exists. The role of government policy and agricultural productivity in industrialization are then considered. Copyright 1991, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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