Reliving the 1950s: the big push, poverty traps, and takeoffs in economic development

Abstract

The classic narrative of economic development—poor countries are caught in poverty traps, out of which they need a Big Push involving increased investment, leading to a takeoff in per capita income—has been very influential in foreign aid debates since the 1950s. This was the original justification for foreign aid. The narrative lost credibility for a while but has made a big comeback in the new millennium. Once again it is invoked as a rationale for large foreign aid programs. This paper applies very simple tests to the various elements of the narrative. Evidence to support the narrative is scarce. Poverty traps in the sense of zero growth for low-income countries are rejected by the data in the whole period 1950–2001 and for most sub-periods. The poorest quintile also does not have significant negative growth of the relative income ratio to the world’s richest country over 1950–2001, nor is relative growth for the lowest quintile significantly different than other quintiles. The claim that “well-governed poor nations” are caught in poverty traps is rejected by simple regressions that control for both initial income and quality of government (instrumenting for the latter). The idea of the takeoff also does not garner much support in the data. Takeoffs are rare in the data, most plausibly limited to the Asian success stories. Even then, the takeoffs are not associated with aid, investment, or education spending as the standard narrative would imply.

This is a preview of subscription content, access via your institution.

References

  1. Acemoglu D., Johnson S., Robinson J. (2002). Reversal of Fortune: Geography and institutions in the making of the modern World income distribution. Quarterly Journal of Economics, 117:1231–1294

    Article  Google Scholar 

  2. Acemoglu, D., Johnson, S., & Robinson, J.A. (2005). Institutions as the Fundamental Cause of Long-Run Growth. In P. Aghion, & S. Durlauf, (Ed.), Handbook of economic growth. Amsterdam:North-Holland.

  3. Acemoglu D., Zilibotti F. (1997). Was prometheus unbound by chance? risk, diversification and growth. Journal of Political Economy, 105, 709–751

    Article  Google Scholar 

  4. Azariadis, C, & Stachurski, J. (2005). Poverty traps. P. Aghion and S. Durlauf (Eds.), Handbook of economic growth. Amsterdam: North Holland.

  5. Azariadis C., Drazen A. (1990). Threshold externalities in economic development. Quarterly Journal of Economics, 105(iss. 2):501–265

    Article  Google Scholar 

  6. Bai J., Perron P. (1996). Estimating and testing linear models with multiple structural changes. Econometrica, 66, 47–78

    Article  Google Scholar 

  7. Bai J., Perron P. (2003). Computation and analysis of multiple structural change models. Journal of Applied Econometrics, 18, 1–22

    Article  Google Scholar 

  8. Bernard A., Durlauf S. (1996). Interpreting tests of the convergence hypothesis. Journal of Econometrics, 71(1–2):161–173

    Article  Google Scholar 

  9. Bils M., Klenow P.J. (2000). Does schooling cause growth?”. American Economic Review, 90(5):1160–1183

    Article  Google Scholar 

  10. Collier, P. (2004). African growth: why a big push is needed. Oxford: Oxford University, Centre for the Study of African Economies, (presented at African Economics Research Commission Conference, December 2004).

  11. Dervis, K. (2005). with Ceren Ozer, A Better Globalization: Legitimacy, Governance, and Reform. Washington DC: Center for Global Development.

  12. Doppelhofer G., Miller R., Sala-i-Martin X. (2004). Determinants of long-term growth: a bayesian averaging of classical estimates (BACE) approach. American Economic Review, 94(4):813–835

    Article  Google Scholar 

  13. Doucouliagos H., Paldam M. (2006). The aid effectiveness literature: The sad result of 40 years of research. Mimeo, Deakin University and University of Aarhus

    Google Scholar 

  14. Durlauf S. (2002). Groups, social influences and inequality: A memberships theory perspective on poverty traps. Mimeo, University of Wisconsin

    Google Scholar 

  15. Durlauf S., Johnson P. (1995). Multiple regimes and cross country growth behavior. Journal of Applied Econometrics, 10(4):365–384

    Google Scholar 

  16. Durlauf, S N., Johnson, P.A., & Temple, J.R.W. (2005). Growth econometrics. in P. Aghion & S. Durlauf, (Eds.), Handbook of economic growth, Vol. 1A. Amsterdam: North Holland.

  17. Easterly W. (1999). The Ghost of financing gap: Testing the growth model of the international financial institutions. Journal of Development Economics, 60(2):423–438

    Article  Google Scholar 

  18. Easterly W. (2002). The lost decades: explaining developing countries. stagnation in spite of policy reform 1980–1998. Journal of Economic Growth, 6(2):135–157

    Article  Google Scholar 

  19. Easterly, W. (2005) Can foreign aid buy growth? Journal of Economic Perspectives, Summer.

  20. Easterly, W. & Levine, R. (2003). Tropics, germs, and crops: the role of endowments in economic development. Journal of Monetary Economics, 50(1), January 2003.

  21. Easterly W., Kremer M., Pritchett L., Summers L.H. (1993). Good policy or good luck?: Country growth performance and temporary shocks. Journal of Monetary Economics, 32(3):459–483

    Article  Google Scholar 

  22. Escobar A. (1994). Encountering development: the making and unmaking of the third world. Princeton, Princeton University Press

    Google Scholar 

  23. Engerman S.L., Mariscal E.V., Sokoloff K.L. (2002). The evolution of schooling institutions in the americas, 1800–1925, Working paper. Los Angeles, University of California

    Google Scholar 

  24. European Commission (2005) EU Strategy for Africa: Towards a Euro-African pact to accelerate Africa’s development, Communication from the Commission to the Council, the European Parliament and the European Economic and Social Committee, Brussels, October 12 2005.

  25. Feyrer J. (2003). Convergence by parts. Mimeo, Dartmouth College

    Google Scholar 

  26. Fox, J.S. (2000). Applying the comprehensive development framework to USAID experiences. OED Working Paper Series No. 15 The World Bank.

  27. Galor O. (1996). Convergence? Inferences from theoretical models. Economic Journal, 106:1056–1069

    Article  Google Scholar 

  28. Galor, O. (2005). From stagnation to growth: unified growth theory. In P. Aghion and S. Durlauf, (Eds.), Handbook of Economic Growth, Vol. 1A, Amsterdam: North Holland.

  29. Galor O., Moav O. (2004). From physical to human capital accumulation: Inequality and the process of development. review of economic Studies, 71(4):1001–1026

    Article  Google Scholar 

  30. Galor O., Moav O. (2006). Das human kapital: A theory of the demise of the class structure. Review of Economic Studies, 73(1):85–117

    Article  Google Scholar 

  31. Galor O., Weil D. (1996). The gender gap, fertility and growth. American Economic Review, 86, 374–387

    Google Scholar 

  32. Galor O., Weil D. (2000). Population, technology, and growth: from Malthusian stagnation to demographic transition and beyond. American Economic Review, 90, 806–828

    Article  Google Scholar 

  33. Galor O., Moav O., Vollrath D. (2003). Land inequality and the origin of divergence and overtaking in the growth process: theory and evidence. Providence, RI, Brown University

    Google Scholar 

  34. Galor O., Zeira J. (1993). Income distribution and macroeconomics. Review of Economic Studies, 60, 35–52

    Article  Google Scholar 

  35. Glaeser E., LaPorta R., Lopes-de-Silanes F., Shleifer A. (2004). Do institutions cause growth?. Journal of Economic Growth, 9(3):271–303

    Article  Google Scholar 

  36. Graham B.S., Temple J. (2006). Rich nations, poor nations: how much can multiple equilibria explain?. Journal of Economic Growth, 11(1):5–41

    Article  Google Scholar 

  37. Hadri K. (2000). Testing for stationarity in heterogeneous panel data. Econometrics Journal, 3, 148–161

    Article  Google Scholar 

  38. Hausmann R., Pritchett L., Rodrik D. (2005). Growth Accelerations. Journal of Economic Growth, 11, 303–329

    Article  Google Scholar 

  39. Jacoby, N.H. (1996). U.S. AID to Taiwan—a study of foreign aid, self-help, and development. New York, Frederick A. Praeger Inc Publishers.

  40. Im K.S., Pesaran M.H., Shin Y. (2002). Testing for unit roots in heterogeneous panels. Mimeo, Cambridge University

    Google Scholar 

  41. IMF and World Bank. (2005). Global monitoring report 2005: millennium development Goals: from consensus to momentum. Washington DC: Washington, IMF and World Bank.

  42. Kraay A., Raddatz C. (2005). Poverty traps, aid, and growth. Mimeo, World Bank

    Google Scholar 

  43. Kremer M., Onatski A., Stock J. (2001). Searching for prosperity. Carnegie-Rochester Conference Series on Public Policy, 55, 275–303

    Article  Google Scholar 

  44. Maddison A. (2003). The world economy: Historical statistics. Paris, OECD

    Google Scholar 

  45. Moav O. (2002). Income distribution and macroeconomics: The persistence of inequality in a convex technology framework. Economics Letters, 75(2):187–192

    Article  Google Scholar 

  46. Moav O. (2005). Cheap children and the persistence of poverty. Economic Journal, 115(500):88–110

    Article  Google Scholar 

  47. Our Common Interest: Report of the Commission for Africa, March 2005 (Blair Commission)

  48. Nelson R.R. (1956). A theory of the low level equilibrium trap. American Economic Review, 46, 894–908

    Google Scholar 

  49. Pritchett L. (1997). Divergence, big time. Journal of Economic Perspectives, American Economic Association, 11(3):3–17

    Google Scholar 

  50. Pritchett L. (2000). Understanding patterns of economic growth: Searching for hills among plateaus, mountains, and plains. World Bank Economic Review, 14(2):221–50

    Google Scholar 

  51. Pritchett, L. (2001). Where has all the education gone? World Bank Economic Review.

  52. Pritchett, L. (2004). Does learning to add up add up? The returns to schooling in aggregate data. draft for Handbook of Education Economics, BREAD Working Paper 53, (http://www.cid.harvard.edu/bread/papers/working/053.pdf).

  53. Quah D. (1996a). Twin peaks: growth and convergence in models of distribution dynamics. Economic Journal, 106(437)1045–1055

    Article  Google Scholar 

  54. Quah D. (1996b). Empirics for economic growth and convergence. European Economic Review, 40(6):1353–1375

    Article  Google Scholar 

  55. Quah D. (1997). Empirics for growth and distribution: stratification, polarization, and convergence clubs. Journal of Economic Growth, 2(1):27–59

    Article  Google Scholar 

  56. Rajan R.G., & Subramanian, A. (2005). Aid and Growth: What Does the Cross-Country Evidence Really Show? IMF Working Paper.

  57. Rodrik D. (1999). Institutions for high-quality growth: what they are and how to acquire them. Mimeo, Harvard University

    Google Scholar 

  58. Rodrik D., Subramanian A., Trebbi F. (2004). Institutions rule: The primacy of institutions over geography and integration in economic development. Journal of Economic Growth, 9(2):131–165

    Article  Google Scholar 

  59. Rosenstein-Rodan P. (1943). The problem of industrialization of eastern and south-eastern Europe. Economic Journal, 53, 202–211

    Article  Google Scholar 

  60. Rostow, W. W. (1990). The Stages of Economic Growth: A Noncommunist Manifesto, 3rd ed., Cambridge University Press (first published 1960).

  61. Sachs J.D. (2005). The End of Poverty: Economic Possibilities for Our Time. New York, The Penguin Press

    Google Scholar 

  62. Sachs, J.D., McArthur, J.W. Schmidt-Traub, G., Kruk, M. Bahadur, C. Faye, M. & McCord, G. (2003). Ending Africa’s Poverty Trap. Paper presented at Brookings Panel on Economic Activity, 2003.

  63. Sala-i-Martin X. (1996). The classical approach to convergence analysis. Economic Journal, 106:1019–1036

    Article  Google Scholar 

  64. Sokoloff K.L., Engerman S.L. (2000). Institutions, factor endowments, and paths of development in the new world. Journal of Economic Perspectives, 14(3):217–32

    Article  Google Scholar 

  65. Stock, J.H., & Yogo, M. (2002). Testing for weak instruments in linear iv regression, nber Technical Working Paper 284, October 2002 (Revised 2004).

  66. UN Millennium Project Report, (2005). Investing in Development: A Practical Plan to Achieve the Millennium Development Goals: Main Report. New York: United Nations.

  67. UN Millennium Project. (2005). Investing in Development: A Practical Plan to Achieve the Millennium Development Goals, Overview Report, New York: UN.

  68. United Nations Development Report (2005). Human Development Report 2005. New York: United Nations.

  69. World Bank (2005). Meeting the challenge of africa’s development: a world bank group action plan, africa region. Washington DC: The World Bank.

Download references

Author information

Affiliations

Authors

Corresponding author

Correspondence to William Easterly.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Easterly, W. Reliving the 1950s: the big push, poverty traps, and takeoffs in economic development. J Econ Growth 11, 289–318 (2006). https://doi.org/10.1007/s10887-006-9006-7

Download citation

Keywords

  • Poverty trap
  • Economic development
  • Economic growth
  • Foreign aid