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The prospects of economic growth in subsistence economies: an alternative view

Author

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  • Paulos Gutema
  • Bichaka Fayissa

    (Addis Ababa University, Ethiopia
    Middle Tennessee State University, USA)

Abstract

In the neoclassical growth models, deferring current consumption and saving part of current income plays an important role in explaining the process of economic growth. In the case of subsistence economies, however, making such economic decisions are hardly possible [Myrdal, 1971]. The conventional models lead one to conclude the impossibility of endogenously driven growth in these economies. This notion implies that the poor tend to remain poor unless their economies are stimulated exogenously. After discussing this problem in detail, this paper attempts to develop a framework of analysis that relies partly on the effects of market failure factors and proposes the possibility of growth in subsistence economies as long as they have the capacity to manage and exploit factors of market failures. Empirical evidence obtained from panel data analysis supports this argument.

Suggested Citation

  • Paulos Gutema & Bichaka Fayissa, 2004. "The prospects of economic growth in subsistence economies: an alternative view," Journal of Developing Areas, Tennessee State University, College of Business, vol. 38(1), pages 19-36, September.
    • Handle: RePEc:jda:journl:vol.38:year:2004:issue1:pp:19-36
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    Cited by:

    1. Bonga-Bonga, Lumengo & Ahiakpor, Ferdinand, 2015. "Determinants of Economic Growth in Sub-Saharan Africa: The case of Ghana," MPRA Paper 66923, University Library of Munich, Germany.

    More about this item

    Keywords

    subsistence economy; market failure; economic growth; savings; panel data;
    All these keywords.

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • D99 - Microeconomics - - Micro-Based Behavioral Economics - - - Other
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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