Good institutions may have another important impact

Good institutions may have another important impact on the overcoming of poverty traps: they may make the economy move away the cyclical equilibria by destroying the closed orbits. Given that one of the equilibria of system (2.1) and (2.2) is not hyperbolic, the associated model presents structural instability. This instability means that very small perturbations in the vector field may lead to qualitatively different behaviors. Thus, since institutional improvement may cause such perturbations in the vector field of our system, one possibility is that, for γ1 high enough, such an improvement causes parasite extinction. In the modified model (2.4)–(2.6) there may not be poverty trap, because all equilibria are hyperbolic. In fact, Definition 3.1 does not exclude the possibility of existence of periodic orbits around equilibria of the modified system. For example, if we are able to find a compact region of the x−y−z space, and a trajectory of the dynamical system such that it remains in this region for all t>0, then Poincaré–Bendixson theorem applies, and this trajectory possibly is a closed orbit or approaches a closed orbit. Thus, for K and β2/θ2 low enough, equilibria E4 and E5, respectively, may satisfy Definition 3.1 and be considered poverty traps. However, such a possibility depends on the parameters’ values, and it may not be straightforward to find the aforementioned compact region. Despite that difference, improvements in the institutional variables in the system (2.4)–(2.6) have a effect on the economic growth similar to one of the baseline model. Equilibrium E5=(β2/θ2, α2/γ2(1−(β2/θ2K)), β2/θ2), for example, presents higher output (number of productive agents) and lower number of purchase Deforolimus as β2 increases. Still, an improvement in the police power (higher γ2) decreases the number of parasites. However, there is a bound for the institutional improvement, given that β2>θ2K implies in negative number of parasites. Even if we considered this situation possible, the equilibrium would become unstable. In fact, as Propositions 2.7 and 2.8 show, these parameters affect stability of equilibria. For instance, although is not directly affected, an institutional improvement may make it stable for higher values of K. We conclude with two observations. First, our results do not change when the profit of both activities are endogenous. In order to see this, assume that α(x) and θ(y) are functions of their respective populations. We can assume that profits decrease as activities become more competitive, such that. Then, a positive shock in x implies a decrease of α(x). It turns out that this causes two effects: a direct one, because the decrease in the profit rate makes some producers leave the sector; and an indirect effect, because with a larger number of potential targets, the number of parasites increases. This latter effect makes θ(y) decrease and the cyclical dynamics restarts. Second, we implicitly assume that the state can choose the values of β and γ without any budget constraint. Obviously, improvements in police power cost money, such that we can conjecture how our findings would change with the inclusion of such constraints. In this case, the state would have two roles: on the one hand it would extract income (a share of the output) of the productive sector in the form of taxes; on the other hand, it would restrain parasitic activity by means of the police. Thus, the state would act both as “producer”, by promoting growth, and as a parasite, by taxing people in order to finance its actions. The dominant effect probably would depend on the specific economy in study.
Introduction Since the General Agreement on Tariffs and Trade (GATT) creation, in 1947, the world witnessed an effective reduction of the traditional commercial barriers (Ossa, 2011). However, at the beginning of the 70s, by way of obscure rules, a new kind of protective measure, termed “non-tariff barrier” (NTB), became largely used and was object of discussion of GATT/WTO in the Tokyo Round during 1973–79 (Quinn and Slayton, 1982). The situation worsened in the 80s and the antidumping mechanism (AD) became known as the main NTB type in use at that time. According to Bloningen and Prusa (2001, p. 1): “since 1980, GATT/WTO members have filed more complaints under the AD statute than under all other trade laws combined, or that more AD duties are now levied in any one year worldwide than were levied in the entire period 1947–1970.”