Editor’s Choice : On Poverty Traps and Equilibria in Growth Models

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On Poverty Traps and Equilibria in Growth Models
Pages 25-30
Olivier de La Grandville

DOI: http://dx.doi.org/10.6000/1929-7092.2013.02.3

Published: 13 March 2013


Abstract: We show that, contrary to a widely spread error, when the savings and the population growth rates are constant, an unstable equilibrium cannot exist in a neoclassical model, because it would imply an increasing average productivity of capital and therefore a negative marginal productivity of labor. As a consequence, a poverty trap, a dire reality, cannot be explained by such an unstable equilibrium, nor cannot it be eliminated by a capital "big-push". We finally give necessary conditions for an economy to escape a poverty trap.

Keywords: Unstable equilibria, growth models.
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