Skip to content
Licensed Unlicensed Requires Authentication Published online by De Gruyter September 6, 2022

Middle-income traps and complexity in economic development

Takao Asano, Akihisa Shibata and Masanori Yokoo

Abstract

In this paper, we develop a simple multi-technology overlapping generations model that exhibits a wide variety of economic development patterns. In particular, our numerical simulations demonstrate that for a given set of parameter values, various types of development patterns such as the middle-income trap, the poverty trap, periodic or chaotic fluctuations, and high-income paths can coexist, and which pattern is realized depends only on the initial value of capital. For another set of parameter values, we show that, due to the pinball effect, an economy starting at a middle-income level can take off to the high-income state or get caught in the poverty trap in a seemingly random way after undergoing transient chaotic motions. Our results can explain observed complicated patterns of economic development in a unified manner.


Corresponding author: Takao Asano, Faculty of Economics, Okayama University, Tsushimanaka 3-1-1, Kita-Ku, Okayama 700-8530, Japan, E-mail:

Funding source: Kyoto University, Institute of Economic Research

Funding source: Japan Society for the Promotion of Science

Award Identifier / Grant number: 17K03806

Award Identifier / Grant number: 20H01507

Award Identifier / Grant number: 20H05631

Award Identifier / Grant number: 20K01745

Award Identifier / Grant number: 21K01388

Acknowledgements

The authors would like to thank Prof. Yoshiyasu Ono, seminar participants at Osaka University and an anonymous referee for their helpful comments. We also thank Dr. Satoko Asano for her assistance.

  1. Author contributions: All the authors have accepted responsibility for the entire content of this submitted manuscript and approved submission.

  2. Research funding: This research was financially supported by International Joint Research Center of Advanced Economic Research of KIER and the Grants-in-Aid for Scientific Research, JSPS (17K03806, 20H05631, 20K01745, 20H01507, and 21K01388).

  3. Conflict of interest statement: The authors declare no conflicts of interest regarding this article.

References

Agenor, P. R. 2017. “Caught in the Middle? The Economics of Middle-Income Traps.” Journal of Economic Surveys 31 (3): 771–91. https://doi.org/10.1111/joes.12175.Search in Google Scholar

Aghion, P., A. Banerjee, and T. Piketty. 1999. “Dualism and Macroeconomic Volatility.” Quarterly Journal of Economics 114 (4): 1359–97. https://doi.org/10.1162/003355399556296.Search in Google Scholar

Akamatsu, K. 1962. “A Historical Pattern of Economic Growth in Developing Countries.” The Developing Economies 1: 3–25. https://doi.org/10.1111/j.1746-1049.1962.tb01020.x.Search in Google Scholar

Andreoni, A., and F. Tregenna. 2020. “Escaping the Middle-Income Technology Trap: A Comparative Analysis of Industrial Policies in China, Brazil and South Africa.” Structural Change and Economic Dynamics 54: 324–40. https://doi.org/10.1016/j.strueco.2020.05.008.Search in Google Scholar

Andrianjaka, R. R., and E. Rougier. 2019. ““What Difference Does it Make (To Be in the Middle Income Trap)?” An Empirical Exploration of the Drivers of Growth Slowdowns.” Structural Change and Economic Dynamics 51: 225–36. https://doi.org/10.1016/j.strueco.2019.08.001.Search in Google Scholar

Asano, T., and M. Yokoo. 2019. “Chaotic Dynamics of a Piecewise Linear Model of Credit Cycles.” Journal of Mathematical Economics 80: 9–21. https://doi.org/10.1016/j.jmateco.2018.11.001.Search in Google Scholar

Asano, T., T. Kunieda, and A. Shibata. 2012. “Complex Behaviour in a Piecewise Linear Dynamic Macroeconomic Model with Endogenous Discontinuity.” Journal of Difference Equations and Applications 18 (11): 1889–98. https://doi.org/10.1080/10236198.2011.601301.Search in Google Scholar

Azariadis, C., and J. Stachurski. 2005. “Poverty Traps.” In Handbook of Economic Growth, vol. 1, edited by P. Aghion, and S. N. Durlauf, 295–384. Amsterdam: Elsevier.10.1016/S1574-0684(05)01005-1Search in Google Scholar

Bresser-Pereira, L. C., E. C. Araújo, and S. C. Peres. 2020. “An Alternative to the Middle-Income Trap.” Structural Change and Economic Dynamics 52: 294–312. https://doi.org/10.1016/j.strueco.2019.11.007.Search in Google Scholar

de la Croix, D., and P. Michel. 2002. A Theory of Economic Growth: Dynamics and Policy in Overlapping Generations. Cambridge: Cambridge University Press.10.1017/CBO9780511606434Search in Google Scholar

Doner, R. F., and B. R. Schneider. 2016. “The Middle-Income Trap: More Politics than Economics.” World Politics 68 (4): 608–44. https://doi.org/10.1017/s0043887116000095.Search in Google Scholar

Eichengreen, B., D. Park, and K. Shin. 2013. “Growth Slowdowns Redux: New Evidence on the Middle-Income Trap.” In NBER Working Paper No. 18673.10.3386/w18673Search in Google Scholar

Fanti, L., and L. Spataro. 2008. “Poverty Traps and Intergenerational Transfers.” International Tax and Public Finance 15: 693–711. https://doi.org/10.1007/s10797-008-9086-8.Search in Google Scholar

Feenstra, R. C., Robert Inklaar, and M. P. Timmer. 2015. “The Next Generation of the Penn World Table.” The American Economic Review 105 (10): 3150–82. https://doi.org/10.1257/aer.20130954.Search in Google Scholar

Gori, L., and M. Sodini. 2020. “Endogenous Labour Supply, Endogenous Lifetime and Economic Development.” Structural Change and Economic Dynamics 52: 238–59. https://doi.org/10.1016/j.strueco.2019.11.006.Search in Google Scholar

Gori, L., and M. Sodini. 2021. “A Contribution to the Theory of Fertility and Economic Development.” Macroeconomic Dynamics 25: 753–75. https://doi.org/10.1017/s1365100519000415.Search in Google Scholar

Guckenheimer, J., and P. Holmes. 1983. Nonlinear Oscillations, Dynamical Systems and Bifurcations of Vector Fields. Berlin: Springer.10.1007/978-1-4612-1140-2Search in Google Scholar

Hartmann, D., L. Zagato, P. Gala, and F. L. Pinheiro. 2021. “Why Did Some Countries Catch-Up, while Others Got Stuck in the Middle? Stages of Productive Sophistication and Smart Industrial Policies.” Structural Change and Economic Dynamics 58: 1–13. https://doi.org/10.1016/j.strueco.2021.04.007.Search in Google Scholar

Hommes, C. 2013. Behavioral Rationality and Heterogeneous Expectations in Complex Economic Systems. Cambridge: Cambridge University Press.10.1017/CBO9781139094276Search in Google Scholar

Hu, Y., T. Kunieda, K. Nishimura, and P. Wang. 2022. “Flying or Trapped?” Economic Theory (forthcoming). https://doi.org/10.1007/s00199-021-01402-4.Search in Google Scholar

Im, F. G., and D. Rosenblatt. 2013. “Middle-income Traps: A Conceptual and Empirical Survey.” In The World Bank Policy Research Working Paper No. 6594.10.1596/1813-9450-6594Search in Google Scholar

Ishida, J., and M. Yokoo. 2004. “Threshold Nonlinearities and Asymmetric Endogenous Business Cycles.” Journal of Economic Behavior & Organization 54 (2): 175–89. https://doi.org/10.1016/j.jebo.2003.04.006.Search in Google Scholar

Iwaisako, T. 2002. “Technology Choice and Patterns of Growth in an Overlapping Generations Model.” Journal of Macroeconomics 24 (2): 211–31. https://doi.org/10.1016/s0164-0704(02)00020-4.Search in Google Scholar

Jones, C. I. 1997. “On the Evolution of the World Income Distribution.” The Journal of Economic Perspectives 11 (3): 19–36. https://doi.org/10.1257/jep.11.3.19.Search in Google Scholar

Jones, C. I. 2016. “The Facts of Economic Growth.” In Handbook of Macroeconomics, vol. 2, edited by P. Aghion, and S. N. Durlauf, 3–69. Amsterdam: Elsevier.10.3386/w21142Search in Google Scholar

Kane, T. 2016. “Accelerating Convergence in the World Income Distribution.” In Hoover Institution Economics Working Paper 16102.Search in Google Scholar

Keener, J. P 1980. “Chaotic Behavior in Piecewise Continuous Difference Equations.” Transactions of the American Mathematical Society 261 (2): 589–604. https://doi.org/10.1090/s0002-9947-1980-0580905-3.Search in Google Scholar

Lai, Y. C., and T. Tél. 2011. Transient Chaos. Berlin: Springer.10.1007/978-1-4419-6987-3Search in Google Scholar

Matsuoka, T., and A. Shibata. 2012. “Asset Bubbles, Credit Market Imperfections, and Technology Choice.” Economics Letters 116 (1): 52–5. https://doi.org/10.1016/j.econlet.2012.01.009.Search in Google Scholar

Matsuyama, K. 2007. “Credit Traps and Credit Cycles.” The American Economic Review 97 (1): 503–16. https://doi.org/10.1257/000282807780323587.Search in Google Scholar

Matsuyama, K. 2010. “Poverty Traps.” In Economic Growth, edited by S. N. Durlauf, and L. E. Blume, 215–21. London: Palgrave Macmillan.10.1057/9780230280823_27Search in Google Scholar

Matsuyama, K., I. Sushko, and L. Gardini. 2018. “A Piecewise Linear Model of Credit Traps and Credit Cycles: a Complete Characterization.” Decisions in Economics and Finance 41 (2): 119–43. https://doi.org/10.1007/s10203-018-0220-5.Search in Google Scholar

Michel, P., and D. de La Croix. 2000. “Myopic and Perfect Foresight in the OLG Model.” Economics Letters 67 (1): 53–60. https://doi.org/10.1016/s0165-1765(99)00246-3.Search in Google Scholar

Oreiro, J. L., K. M. da Silva, and M. J. Dávila-Fernández. 2020. “A New Developmentalist Model of Structural Change, Economic Growth and Middle-Income Traps.” Structural Change and Economic Dynamics 55: 26–38. https://doi.org/10.1016/j.strueco.2020.07.008.Search in Google Scholar

Umezuki, Y., and M. Yokoo. 2019a. “A Simple Model of Growth Cycles with Technology Choice.” Journal of Economic Dynamics and Control 100: 164–75. https://doi.org/10.1016/j.jedc.2018.11.006.Search in Google Scholar

Umezuki, Y., and M. Yokoo. 2019b. “Chaotic Dynamics of a Piecewise Smooth Overlapping Generations Model with a Multitude of Technologies.” In Okayama University Discussion Paper No. I-103.Search in Google Scholar

Yokoo, M. 2000. “Chaotic Dynamics in a Two-Dimensional Overlapping Generations Model.” Journal of Economic Dynamics and Control 24 (5–7): 909–34. https://doi.org/10.1016/s0165-1889(99)00030-5.Search in Google Scholar


Supplementary Material

The online version of this article offers supplementary material (https://doi.org/10.1515/snde-2021-0100).


Received: 2021-11-19
Accepted: 2022-08-21
Published Online: 2022-09-06

© 2022 Walter de Gruyter GmbH, Berlin/Boston

Scroll Up Arrow