Nelson Low Level Equilibrium TrapPosted January 10, 2010 by basiliskt in Economic Development.14 CommentsRichard R. Nelson, an American professor of economics at Columbia University presented his theory for underdeveloped countries based on Malthus View;The population tends to rise when per capita income rises above minimum subsistence wage.According to Nelson underdeveloped countries have always stable equilibrium per capita income equal to subsistence level and this low per capita income entrapped such economies in vicious cycle presented below.

An increase in per capita income works on population growth rate as;In beginning increase in per capita income leads to increase population.Then it decrease population.To show how underdeveloped countries (UDCs) are trapped by low equilibrium level of income Nelson presents three sets of relations.Y = f ( K , L , Tech )New investment is equal to capital created out of savings (in form of addition to machine tools and addition of new land).Whenever the per capita income reaches a level above the subsistence level any further increase in it will have a negligible effect on death rates. Moreover changes in death rate are due to changes in per capita income.Reasons Behind the trapHigh Correlation1 between per capita income and population growth rateScarcity of non cultivable area of land.Inefficient techniques of production.Social and economic inertia2.Little propensity to direct addition per capita income to increase investment.Graphical Demonstration of theory

ExplanationIn panel (1) of figure the curve dp/p shows population growth rate by taking per capita income (Y/P) along x-axis and population growth rate along y-axis. Curve dP/p intersects x-axis at point a indicating minimum subsistence per capita income where dP/p=Y/P. Population is decreasing left to point a whilst it is increasing right to the same point shown by arrows. When per capita income is above subsistence level at first Population growth rate attains maximum point b then becomes stationary and lastly starts decelerating after point c.Panel (2) of figure shows the curve of per capita rate of investment out of saving (dK/p) relating per capita of investment with varying levels of per capita income. At point x savings are zero. Left to the point, saving is negative while it is increasing along investment growth curve (dK/p).Panel (3) shows curves of population growth rate (dP/p) and per capita income growth (dY/Y) by taking dP/p and d Y/Y along y-axis and per capita income along x-axis. Both curves(dP/p) and d Y/Y are intersecting at point y where d Y/Y = dP/p. Before point y dP/p < d Y/Y which push an economy to point y where zero saving is equal to minimum subsistence level of per capita income. Above y point dP/p > d Y/Y pushing an economy again to point y. This process goes on and on entrapping an economy of UDCs in an equilibrium trap of low-level of per capita income.Getaway from the trapAccording to Nelson following steps can avoid trap;Favorable socio-economic and political environment.Reduction in family size.Change in income distribution.Proportion of public investment must be changed.Loans should be taken from foreign countries to support investment and capital.Improved techniques of production.CriticismPopulation growth is assumed an increasing function of per capita income growth rate in the start then as its decreasing function but in actuality population growth takes place due to an augment in public health facilities.References:R.R. Nelson (1956) A Theory of the Low Level Equilibrium Trap, American Economic Review, Vol. 46, p.894-908.Economic Development by M.P.TodaroEconomic Development by Herrick and Kindleberger1 A tendency of per capita income and population growth rate to vary together.2 An example of Social inertia in Pakistan is in the form of choice of corrupted political parties again and again regardless of benefits./index.php" Home About Site Preserve Your Article Content Quality Guidelines Disclaimer TOS Contact Us \l "What is the Low Level Equilibrium Trap theory put forward by R.R. Nelson? Rohit Bura Low Level Equilibrium Trap theory put forward by R.R. NelsonThe Theory of the 'Low-level Equilibrium Trap' (or what has also been called the Malthusian Trap) has been developed by R.R. Nelson in the mid- 1950s.Basically, the theory that as per capita income remains below a critical level, a population growth rate that exceeds the income growth rate will always bring the economy back to a 'Low-level Equilibrium Trap'.Subsequently, when point B is crossed, that is at income level beyond OF, the rate of growth of income exceeds that of population, largely due to a decline in fertility rates, and until point C representing a stable equilibrium is reached. Nelson mentions four social and technological conditions which may bring about the trap they are:A high correlation between the level of per capita income and the rate of population growth,A low propensity to direct additional per capita income to increasing per capita investment,Scarcity of uncultivable arable land,Inefficient methods of production.Nelson also points towards two other factors, viz. (i) cultural inertia, and (ii) economic inertia. These two are caught in a vicious circle, and faced on each other. The strength of the trap depends on the degree of the force of the factors that act to trap an economy.Escape from the low-level equilibrium trap is possible either by increasing the rate of growth of income, or by lowering the rate of growth of population, or by both, so that the diagram of economic-demographic development. Nelson suggests several ways of escaping the low- level equilibrium trap and many of there are to be used simultaneously. Among these, the more important are as followed:There should be a favourable socio-economic environment in the country.The social structure should be changed by laying a greater emphasis on thrift and entrepreneurship. Greater produce more and to limit the size of the family.Measures should be adopted to change that distribution of income, at the same time enabling accumulation of wealth by investors.There should be an all-perverting government investment programme.Income and capital should be used to utilise existing resources more fully so that income is increased from the given inputs.Getting out of the trap required increasing the rate of growth of income to levels higher than the rate of increase in population. A jump must be made to the point which is above a certain minimum per capita income so that a sustained growth may take place, without further government action until a high level of per capita income is reached.The theory has been criticised on the following grounds:One, the Theory assumes that an increase in per capita income up to a point leads to an increase in rate of population growth via decline in death date. But decline in death rate in underdeveloped countries is more due to improvements in public health and medical facilities then due to increase in per capita income levels.Two, the functional relation between level of per capita income and the rate of total income growth is not as simple as is assumed in the Theory.Three, the theory assumes a set of timeless functional relationships. The timeless approach fails to make any distinction between short-run economic activities of the developed countries and long-run economic activities of underdeveloped countries.Four, theory has ignored the rate of state in controlling the population growth. It is believed that an increase in per capita income above subsistence level is bound to increase the rate of growth of population till the latter reaches 3 per cent and so it is very difficult to break the trap. But the empirical evidence is contrary to it.Many governments have taken well-directed steps to force down the growth rates of population. All the same, the basis truth of the theory cannot be contested that persistent efforts are required to control the population on one hand and raise the national income on the other. This is the way to escape time the low equilibrium trap.You May Also Like: What are the Changes in punitive philosophy? What is digital convergence?Guidelines About Site Content Quality Guidelines Terms of Service Privacy Policy Disclaimer Copyright Recent Articlesspellingerrors Report Spelling and Grammatical ErrorsSuggestions Suggest UsTestimonials Users Testimonials

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/submit-form/myform.html/submit-form/myform.htmlSearch ArticlesBackwash and Spread EffectWhat are the causes and consequences of backwash and spread effects? What type of public policies can correct any imbalances between the two effects, inter-regionally within a country

Once economic and social forces occur in favored region, development produce tendencies toward disequilibrium, the differences in living standards may persist and even widen over time. Myrdal propose hypothesis of circular and cumulative causation, means once an economy obtains a growth advantage it will tend to keep it. Development proceeding more rapidly in certain region than other. The cumulative movements which tend to economically weaken region were termed backwash effects. Those caused by labor migration, capital movements, and trade. In free market, capital will tend to move to the site where prospective returns are highest. Thus capital, labor, technology, and entrepreneurship will migrate together. The benefit of trade will accrue to the host region. As the results, the region experiencing the rapid growth will be able to increase its competitive advantage over the relatively lagging regions, the improvement in transportation, communication, education, healthcare facilities.

Myrdal also argues the spread effect or positive externalities, that such a new growth stimulus might induce other region, such as increased demand for backward areas product, diffusion of technology and knowledge. However, the spread effects are weaker than backwash effect, and interregional differences remain widen.

Hirchman argues that policies must be designed to reduce polarization and to strengthen spread effect. Type of public policies to imbalance between those two effect inter regionally within the country are: (i) fiscal policy, wealth taxes for redistribution of wealth and income; (ii) institutional reform against corruption, corruption is critical issue in development country. The World Bank defines corruption as the abuse of public office for private gain, including bribery, threats, and kickbacks. The existence of licenses, permits, regulations, subsidies, and taxes in the hand of politician or government officials, are open opportunity for corruption. The state has an obligation to reduce bureaucracy and regulation to allow markets to flourish. Corruption creates high cost economy because the cost in time, effort, and money in setting up business in developing countries are high with delay and inefficiency in bureaucracy. Corruption discourages business, higher proportion of business operates outside the law, so the tax also lower, and corruption become acute. In the context of backwash effect, corruption affect distribution of allocation resource, when industry can get privileges to choose any place they want to operate their business, regardless the development planning for allocation of resources; (iv) balance between agriculture and industry, placing labor-intensive industry in rural area to attract circular cumulative causation in rural area, reduce rural-urban migration, and eradicate poverty both in rural and urban