The Economics of Poverty Traps Part One: Complete Markets

This paper lists theoretical reasons why neoclassical models of one-sector growth imply that nations with identical economic structures need not converge to the same steady state or balanced growth path, and outlines the empirical significance and policy implications of conditional nonconvergence. We survey poverty traps in both convex and nonconvex economies with complete market structures. Among the potential causes of traps are subsistence consumption; distorted international trade in intermediate inputs; demographic transitions when fertility is endogenous; technological complementarities in the production of consumption goods, financial intermediation services, manufactures, or human capital; coordination failures among voters; various restrictions on borrowing; indivisibilities in human capital formation or child rearing; and monopolistic competition in product or factor markets.