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Increasing Returns, Industrialization and Indeterminacy of Equilibrium

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  • Kiminori Matsuyama

Abstract

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.
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  • Kiminori Matsuyama, 1990. "Increasing Returns, Industrialization and Indeterminacy of Equilibrium," Discussion Papers 878, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  • Handle: RePEc:nwu:cmsems:878
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