Middle-Income Traps and Complexity in Economic Development

Abstract

In this paper, we develop a simple growth 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.