Stages of growth in economic development

The paper analyses a two-sector model of endogenous growth with two common features of economic development: stages of sustained growth and underdevelopment traps. The model also demonstrates the transitional issues of a temporary underdevelopment trap, seemingly sustainable growth, and a slowdown in productivity growth. The temporary underdevelopment trap occurs when an economy exhibits a regime of extensive growth (i.e. slowly declining growth in physical capital with no growth in human capital), but thereafter starts a transition to sustained growth. Seemingly sustainable growth happens when an economy exhibits a regime of intensive growth (i.e. both capitals grow initially) but the growth of human capital subsequently ceases and the economy eventually finds itself in a zero growth trap. The model also exhibits the possibility of a slowdown in productivity growth as a temporary phenomenon during the transition from the low growth stage to the high growth stage of an economy facing a new "industrial" revolution. (C) 2002 Elsevier Science B.V. All rights reserved.