A ROSTOVIAN MODEL OF ENDOGENOUS GROWTH AND UNDERDEVELOPMENT TRAPS

The paper presents a model which combines self-sustained growth and 'underdevelopment traps' into a common analytical framework. We provide 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 a region where growth is 'Romer-type', with endogenous self-sustained growth. In some critical stages of development there exist multiple equilibrium trajectories, consistent with alternative sets of self-fulfilling beliefs.