Endogenous Develpment Traps in an Evolutionary Economic System

LONDON, SILVIA, TOHMÉ FERNANDO

Bahia Blanca

Jornada; Jornadas Latinoamericanas de Teoria Economia; 2009

Departamento de Economia UNS - Asociacion Latinoamericana de Teoria Economica

In this paper, we present an effective characterization of economic evolution combining the algorithmic nature of ESO systems with the intuitions developed about the role that knowledge plays in economic evolution. It will be shown that social knowledge can be embedded in an ESO representation of economic systems as an extra parameter. This simple procedure has the advantage of preserving all the theorems valid for general ESO systems and at the same time it provides a more economic-like representation. A theorem of soundness will be provided for this representation and the lack of a completeness result will also be discussed. An important feature of this model is that it provides a framework fit for the characterization of various development-related phenomena. We focus here on the existence of poverty traps. That is, the existence of barriers to continued development. We characterize them as systems in which endogenous thresholds to change exist, such that shocks are unable to move the system away from a (low) stationary state. In the next section we will give a brief overview of ESO systems and their properties. In section 3 we will give a formal characterization of evolving economies. In section 4 we will show how this characterization can be reduced to an ESO system using a simple specification of the aggregate knowledge.