Logo
Munich Personal RePEc Archive

Development loans, poverty trap, and economic dynamics

Le Van, Cuong and Pham, Ngoc-Sang and Pham, Thi Kim Cuong (2021): Development loans, poverty trap, and economic dynamics.

[img]
Preview
PDF
MPRA_paper_110870.pdf

Download (734kB) | Preview

Abstract

This paper investigates the nexus between foreign aid (in the form of loans), poverty trap, and economic development in a recipient country by using a Solow model with two new ingredients: a development loan and a fixed cost in the production process. The presence of this fixed cost generates a poverty trap. Development loans may help the country to escape from the poverty trap and converge to a stable steady-state in the long run, but only if (i) the country's characteristics, such as saving rate, initial capital, governance quality, and in particular productivity, are good enough, (ii) the fixed cost is relatively low, and (iii) loans rule is generous enough. We also show that there is room for endogenous cycles in our model, unlike the standard Solow model.

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.