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Comment on Chapters 5 and 6

Comment on Chapters 5 and 6

(p.257) Comment on Chapters 5 and 6
The Economics of Poverty Traps
Stephen C. Smith
University of Chicago Press

There has arguably become a recent imbalance in development economics, with the pendulum swinging too far away from theory; these two chapters may be seen as part of a trend toward rebalance between theory and empirics.

Francisco J. Buera, Joseph P. Kaboski, and Yongseok Shin provide a useful targeted literature review set in context of a formal model. They offer some impressive innovations; in particular in the way they treat heterogeneity, and in making intriguing connections between micro programs and macro outcomes. Although highly stylized, the model has impressive properties, and its generality is one of its strengths. The model is compact and flexible enough to cleverly represent a range of recent empirics and theory, and its formulation provides for great tractability. The model is well deployed to guide intuition at various stages of the arguments. In particular, the authors provide an insightful way to model and study the role of productivity shocks, while allowing for relevant market failures with suitable model interpretation. Despite its fexibility, there are important limits to what the model can represent. However, it is unreasonable to expect one model to span the canon of trap analysis, even with respect to their more limited focus on microenterprise and programs to relax credit constraints....

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