Increasing Returns, Industrialization, and Indeterminacy of Equilibrium

Kiminori Matsuyama

The Quarterly Journal of Economics, 1991, vol. 106, issue 2, 617-650

Abstract: This paper asks whether adjustment processes over real time help to "select" the long-run outcome in a model of industrialization, where multiple stationary states exist because of increasing returns in the manufacturing sector. "History" alone cannot in general determine where the economy will end up. Self-fulfilling expectations often make the escape from the state of preindustrialization (the takeoff) possible. The global bifurcation technique is used to determine when an underdevelopment trap exists and when a takeoff path exists. The role of government policy and agricultural productivity in industrialization are then considered.

Date: 1991
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Working Paper: Increasing Returns, Industrialization and Indeterminacy of Equilibrium (1990)
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