Culture and stages of economic development

Abstract

How do cultural di¤erences in preferences a¤ect economic development? This study develops a simple growth model that features two stages of development. In the …rst stage, economic growth is driven by human capital accumulation. In the second stage, economic growth is driven by innovation. The economy does not necessarily experience the transition from the …rst stage to the second stage. If this endogenous transition does not occur, the economy converges to a steady-state level of output. The economy remains in this middle-income trap if leisure preference is too strong or parental preference for education is either too weak or too strong.