Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/37105
Authors: 
Strulik, Holger
Year of Publication: 
2009
Series/Report no.: 
Discussion papers // School of Economics and Management of the Hanover Leibniz University 426
Abstract: 
This paper introduces wealth-dependent time preference into a simple model of endogenous growth. The model generates adjustment dynamics in line with the historical facts on savings and economic growth in Europe from the High Middle Ages to today. Along a virtuous cycle of development more wealth leads to more patience, which leads to more savings and even higher wealth. Savings rates and income growth rates are thus jointly increasing during the process of development until they converge towards constants along a balanced growth path. During the transition to modern growth an economy in which the association of wealth and patience is stronger overtakes an otherwise identical economy and generates temporarily diverging growth rates. It is shown how wealth-dependent time preference can explain the existence of a locally stable poverty trap as well as the phenomenon of simultaneously falling interest rates and rising growth rates.
Subjects: 
economic growth
savings
time preference
poverty trap
moral consequences of economic growth
JEL: 
O11
O41
D90
P48
Document Type: 
Working Paper

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