Low-Level Equilibrium and Fractional Poverty Traps
This chapter delves further into the problem of growth theory and what has previously been referred to as low- or high-level equilibrium traps. It is a technical chapter in the sense that we develop a conceptual model that links population, land, output, innovation, and uncertainty in a dynamic and stochastic way. We then establish some initial conditions and calibrations based on data available for Shandong and Hebei, and use Monte Carlo methods to run the model over a 500-year period intended to mimic the years 1400 through 1900. We argue that when risk is explicitly entered into a classical growth model, the resulting dynamics are highly fractional. This leads us to consider the idea of fractional poverty traps.