Flying or Trapped

We develop a unified theory under which not only a poverty trap but a middle income trap may also exist. In an otherwise standard growth model, we consider endogenous technology choice in human/knowledge capital accumulation, which enables us to establish a rich array of equilibrium development paradigms, including poverty trap, middle income trap and flying geese growth. We then generalize the baseline structure and establish conditions for different development paradigms to arise. By calibrating the general model to fit the data from several representative economies with different income and growth patterns, we identify various prolonged flying geese episodes and middle income traps. Our results suggest that improving human capital accumulation efficacy is most important, mitigating barriers to human capital accumulation is overall more rewarding than advancing total factor productivity.