The idea trap: the political economy of growth divergence

The paper develops an economic–political model to explain why the convergence hypothesis fails even though good economic policies seem to be a sufficient condition for strong economic growth (Sachs, J., Warner, A., 1995a. Economic convergence and economic policies. NBER Working Paper No. 5039. National Bureau of Economic Research, Cambridge, MA.). The model has three variables: growth, policy, and ideas, which take on discrete values ‘‘good’’, ‘‘mediocre’’, or ‘‘bad’’. Positive feedback from growth to ideas gives rise to multiple equilibria. In one, the ‘‘idea trap’’, bad growth, bad policy, and bad ideas mutually support each other; better policies would work, but are endogenously unlikely to be tried. The paper then illustrates the model’s empirical plausibility by reinterpreting some otherwise puzzling historical episodes. D 2003 Elsevier Science B.V. All rights reserved. JEL classification: O40; D72; O10