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Innovation, Unemployment and Policy in the Theories of Growth and Distribution

Edited by Neri Salvadori and Renato Balducci

Innovation, Unemployment and Policy in the Theories of Growth and Distribution increases our understanding about the more relevant economic determinants and policy aspects of the interdependence between economic growth and income distribution.
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Chapter 14: Economic growth and poverty traps: a simple geometry of intergenerational transfers

Luciano Fanti and Luca Spataro


* Luciano Fanti and Luca Spataro 14.1. INTRODUCTION There is renewed interest in the relation between economic growth and income distribution. However, while the literature has mainly focused on the issue of the functional distribution of income between classes, social groups and so on, and of individual distribution, less attention has been devoted to the relation between growth and intergenerational distribution. In addition, the recent literature on economic growth has highlighted the role of multiple equilibria and poverty traps in explaining the different longrun performance of rich and poor countries.1 However, again, the role of the intergenerational distribution of resources and of redistributive public policies has been overlooked in this stream of literature. We recall that a loose definition of a poverty trap concerns the existence of a stable ‘poor’ steady state equilibrium (low levels of per capita output and capital stock) which assumes the feature to be a trap in that, notwithstanding the efforts of the agents to escape from it, the economy shows a tendency to return to such a poor equilibrium. At least three canonical models of poverty traps in the framework of the neoclassical theory of growth have been largely discussed: 1) models with non-constant returns to scale in technology, due for example to externalities such as learning-by-doing or, from a historical point of view, due to the transition from an agricultural era at diminishing returns to an industrial era at increasing returns; 2) models with a non-constant rate of population growth, for instance corresponding historically to...

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