Contents

Abstract 296

Keywords 296

1. Introduction 297

2. Development facts 303

2.1. Povertyandriches 303

2.2. A brief history of economic development 304

3. Models and definitions 307

3.1.

3.2. Convex neoclassical growth and the data 312

3.3. Poverty traps: historical self-reinforcement 317

3.4. Poverty traps: inertial self-reinforcement 326

4. Empirics of poverty traps 330

4.1. Bimodality and convergence clubs 330

4.2. Testing for existence 335

4.3. Model calibration 337

4.4. Microeconomic data 339

5. Nonconvexities, complementarities and imperfect competition 340

5.1. Increasing returns and imperfect competition 341

5.2. The financial sector and coordination 343

5.3. Matching 346

5.4. Otherstudiesofincreasingreturns 349

6. Credit markets, insurance and risk 350

6.1. Creditmarketsandhumancapital 351

6.2. Risk 355

6.3. Creditconstraintsandendogenousinequality 358

7. Institutions and organizations 363

7.1. Corruption and rent-seeking 364

7.2. Kinship systems 367

8. Other mechanisms 373

9. Conclusions 373

9.1. Lessons for economic policy 374

Acknowledgements 375

Appendix A 375

A.1. Markov chains and ergodicity 375

A.2. Remaining proofs 378

References 379