Zilibotti, Fabrizio
(1994)
Endogenous growth and underdevelopment traps: A theoretical and empirical analysis.
PhD thesis, London School of Economics and Political Science.
Abstract
The Thesis investigates issues of growth and development economics from both a theoretical and empirical perspective. The basic stylised fact which motivate the analysis are the existence, documented in the work, of poverty traps and the observation that there is a critical stage in which growth becomes the normal condition of a society. The main objective of the work is to identify economic determinants which explain the growth-stagnation dichotomy, or why countries find more difficulties in activating growth rather than in keeping growth going. In the first chapter, I construct a model which combines self-sustained growth and 'underdevelopment traps' into a common analytical framework. The model exhibits aggregate non-convexities and thresholds which separate a region in which the equilibrium growth path converges to a stationary steady-state from a region in which growth is self-sustained. The core of the chapter is a set of original formal propositions about non-linear economic dynamics of which I make use in both this and the following chapter. The outcome of some simulations are also discussed. The findings are used to interpret some historical episodes like the take-off experience of different countries during the Industrial Revolution. The second chapter presents a model built on a similar analytical framework, based on the parable of an economy of many island which grow different fruits from specific trees, whose fertility increases when fertilisers taken from different islands are employed. The parable aims at explaining how the cost of 'market activity' and intermediation affect growth and, possibly, cause underdevelopment traps. The following chapter tests some implications of the model. The fourth chapter introduces into the analysis foreign direct investments as a potential source of growth, stressing how enforcement problems may limit their flow towards poor countries. Overlapping generations of heterogeneous agents choose the level of individual investment in human capital, whose effects are transmitted between dynasties, and elect the government. The political equilibrium is determined by the distribution of income across generations. Simulations show that it is possible for structurally identical countries to select alternative equilibria at some period and converge to either a constant positive growth rate or a low income stationary state. The last chapter is an empirical investigation of the sources of macroeconomic fluctuations using the methodology of structural vector autoregression analysis. It extends to a multicountry framework the decomposition analysis of the GNP into permanent and temporary components and present the results of an application to the United States and United Kingdom using a sample of about one century length. The results confirm other authors' findings about the large relative importance of temporary disturbances in explaining business cycle fluctuations.
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