Patience and Prosperity

Holger Strulik ()

Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover from Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Abstract: This paper introduces wealth-dependent time preference into a simple model of endogenous growth. The model generates adjustment dynamics in line with the historical facts on savings and economic growth in Europe from the High Middle Ages to today. Along a virtuous cycle of development more wealth leads to more patience, which leads to more savings and even higher wealth. Savings rates and income growth rates are thus jointly increasing during the process of development until they converge towards constants along a balanced growth path. During the transition to modern growth an economy in which the association of wealth and patience is stronger overtakes an otherwise identical economy and generates temporarily diverging growth rates. It is shown how wealth-dependent time preference can explain the existence of a locally stable poverty trap as well as the phenomenon of simultaneously falling interest rates and rising growth rates.

Keywords: economic growth; savings; time preference; poverty trap; moral consequences of economic growth. (search for similar items in EconPapers)
JEL-codes: O11 O41 D90 P48 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-evo, nep-fdg and nep-mic
Date: 2009-07
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Persistent link: http://EconPapers.repec.org/RePEc:han:dpaper:dp-426

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