Multiple equilibria arising from donor’s aid policy in economic development

AbstractThe notion of “economic development” dominates aid policy. A nation’s per capita Gross Domestic Product (gdp) determines whether that country is considered developed or less developed, and the standard measure of any developmental progress isgdpgrowth. This article investigates the evolution of the concept of economic development, as it emerged from a specific combination of modeling, statistics and political circumstances. In this story, Arthur Lewis played a decisive role, but only by building upon Colin Clark’s first global national income statistics, an indispensible foundation for Lewis’s seminal model of economic development. This model was embraced by policy makers longing for a theoretical framework to clarify and operationalize the hitherto vague concept of development. More importantly, however, the statistical indicator on which Lewis based his theory had already been universally accepted. In other words: statistics came before theory. This holds important lessons for alternative development ideas. It explains why the idea of economic development remains so firmly entrenched and suggests the conditions that might be necessary for an alternative theory to take hold.

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On Quality Traps and Economic Development

10.1093/oso/9780198812555.003.0010 ◽

2017 ◽

Author(s):

Patrick M. Emerson

Keyword(s):

Economic Development ◽

Nash Equilibrium ◽

Multiple Equilibria ◽

Stable Equilibrium ◽

Quality Level ◽

Equilibrium Concept ◽

Government Institutions ◽

Quality Of Institutions ◽

Joint Quality

This chapter considers the interdependence among the quality levels of government institutions. Citizens of democratic societies are consumers of institutional output and the quality they demand from individual institutions is posited to be a function of the joint quality of all institutional output. Specifically, the quality of institutions is hypothesized to enter into consumers’ preferences in a supermodular fashion. An implication of this is that citizens will tend to desire institutions of the same quality; thus resource constrained democratic governments will tend to match the quality level of their complementary institutions. The Nash equilibrium concept is employed to show that multiple equilibria will result, and that a stable equilibrium exists at a low level of quality.

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