History Dependence

History Dependence

1. History dependence = multiple steady states!

   • Unlike multiple equilibria where both options are open to all countries, with history dependence from a starting point only one steady state can be reached.

2. Adsera-Ray model

   • Shows that multiple equilibria where there are lagged externalities becomes history dependence and a poverty trap
   • Only way for there to be multiple equilibria is with congestion costs

3. Credit Market Failure model

   • Borrower evasion creates a credit market failure, loan rate > deposit rate
   • This creates a convexity in the decision to invest in education. The result is if bequest x>g the family dynasty will converge to the high-wage steady state.
   • It is very difficult to test for a poverty trap

4. Miguel & Roland (2011)

   • Test post-bombing regional growth in Vietnam. The poverty trap model predicts depressed growth (more bombing = poorer now)
   • Results: No evidence of poverty trap
   • Selection bias problem - uses distance from the 17th parallel as IV estimator for bombing intensity

5. Measuring inequality

   • Poverty lines, e.g. dollar a day
   • Gini coefficient

6. Acemoglu, Garcia-Jimeno & Robinson (2012)

   • Test for the effects of historical slavery on current poverty in Columbia
   • Gold mines as an IV estimation
   • Results: Poverty is 23% higher in former slave regions

7. Ghatak & Jiang (2002)

   • Educational choice model but where wages are endogenous. Everyone has three options; to work on a farm; to work for an entrepreneur; or to be an entrepreneur. There is a credit market failure.

8. Bryan paper - Bangladesh

   • Paid people to migrate out of the village during annual famines
   • Persistently higher seasonal migration suggests poverty trap existed