A Rostovian model of endogenous growth and underdevelopment traps

Abstract

The paper presents a model which combines self-sustained growth and ''underdevelopment traps'' into a common analytical framework. The objective is to given an analytical interpretations to Rostow''s observation that there is a ''decisive interval in the history of a society when growth becomes its normal condition'' and to the empirical evidence that some countries seem not to have achieved this stage yet. The model exhibits aggregate non-convexities and thresholds which separate a region where growth is ''Solow-type'', with convergence to a stationary steady-state from region where growth is ''Romer-type'' , with endogenous self-sustained growth. In some critical stages of development multiple equilibrium trajectory may exist, consistent with alternative sets of self-fulfilling beliefs