2. Contemporary Models of Development and Underdevelopment
Chapter 5

3. New Growth Theory: Endogenous Growth
Motivation for the new growth theory
The Romer model
(5.1)
(5.2)
(5.3)

4. New Growth Theory: Endogenous Growth
Motivation for the new growth theory
The Romer model
Criticisms of the new growth theory

5. Underdevelopment as a Coordination Failure
Coordination failures occur when agents’ inability to coordinate their actions leads to an outcome that makes all agents worse off
We’ll consider
‘big push’ models
the ‘O-ring’ model

6. Multiple Equilibria: A Diagrammatic Approach
Generally, these models can be diagrammed by graphing an S-shaped function and the 45º line
Equilibria are
stable when the function crosses the 45º line from above
unstable when the function crosses the 45º line from below

7. Figure 5.1 Multiple Equilibria

8. Starting Economic Development: The Big Push
Sometimes market failures lead to a need for public policy intervention
The big push: a graphical model
assumptions

9. Figure 5.2 The Big Push

10. Starting Economic Development: The Big Push
Sometimes market failures lead to a need for public policy intervention
The big push: a graphical model
assumptions
conditions for multiple eqilibria
other cases in which a big push may be necessary
Why can’t the problem be solved by a ‘super-entrepreneur’?

11. Further Problems of Multiple Equilibria
Inefficient advantages of incumbency
Behavior and norms
Linkages
Inequality, multiple equilibria, and growth

12. Kremer’s O-Ring Theory of Economic Development
The O-ring model

13. Figure 5.3 The O-Ring Production Function: Wage as a Function of Human Capital Quality

14. Kremer’s O-Ring Theory of Economic Development
The O-ring model
Implications of the O-ring theory

15. Concepts for Review Agency costs Agent Aid failure
Asymmetric information
Big push
Complementarities
Complementary investments
Congestion
Coordination failure
Deep intervention
Endogenous growth theory
Linkage
Multiple equilibria
New growth theory
O-ring model

16. Concepts for Review, cont’d
O-ring production function
Pareto improvement
Pecuniary externalities
Poverty trap
Prisoners’ dilemma
Public good
Romer’s endogenous growth model
Solow residual
Technological externalities
Underdevelopment trap
Where-to-meet dilemma