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    • As these figures shown the model allows us to conclude

    2018-10-26

    As these figures shown, the model allows us to conclude for the existence of path dependence, namely the initial conditions play a decisive role in the determination of the final equilibrium in the labour market. According to Wirl and Feichtinger (2005, p. 391) path dependence in a one dimensional model means that there exists a threshold value such that the steady state outcome depends on whether one starts by historical incidence either to the left or the right of this threshold. In the present treatment as we are dealing in the plane it GS-9620 is possible to identify not a threshold point but a threshold curve or set that defines sets that give rise to poverty traps. In the literature such a threshold set become known as Skiba threshold – or points or sets – in honour of the pioneering work of Skiba (1978) (see Deissenberg et al. (2003)). If for instance, then the final outcome of the model is the low level equilibrium (0,0) and the government can do nothing to change this situation. But the basin of attraction is affected by the choice of tax, fine and the probabilities of catching firms and workers in the informal sector. This means that the government is able to determine the size of the set Ω′ and consequently of set Ω – defined in the propositions 1 and 2, respectively – by choosing properly these variables as policy tools. But once they are chosen the model presents path dependency. A similar result in terms of phase diagrams was obtained by Hiller (2010) by studying workers’ behaviour and labour contracts in an evolutionary set up. He has found multiple equilibrium with a saddle path interior solution and two unstable, namely (0,1) and (1,0), and two stable, namely (0,0) and (1,1) points. Besides the size of basin of attraction is affected by one of the parameters of the model and the final outcome of the model depends on the initial conditions which is evidence of path dependence. Another example is Vega-Redondo (1996, p. 109) who considers an evolutionary model that exhibits trading complementariness similar to the one we consider here: populations of two separated islands may decide to be ‘employed’ or ‘unemployed’ and then they are matched in pairs. If occurs the matching of two employed individuals, they exchange their goods and they both have a positive utility. If two ‘unemployed’ individuals are matched they have zero utility but if an ‘employed’ individual of one island matches an unemployed individual of the other island the ‘employed’ individual receives a negative pay-off since she has worked to produce the good but can neither consume nor exchange its good while the ‘unemployed’ worker has zero utility since it did not made any effort. The final outcome of this evolutionary game is that equilibrium (0,0) and (1,1) in which populations of both islands chooses (employed, employed) or (unemployed, unemployed) are asymptotically evolutionary stable.
    Conclusion
    Introduction The fact that a competitive exchange rate is a decisive condition for economic development is becoming increasingly clear (see Razin and Collins, 1997; Bresser-Pereira and Nakano, 2003; Gala, 2006; Frenkel and Taylor, 2006; Eichengreen, 2008; Rodrik, 2008; Williamson, 2008). On the other hand, a macro-economics of development is being developed around the exchange rate, with the tendency for cyclic and chronic overappreciation of the domestic currency as a general thesis (Bresser-Pereira, 2010). The clearest historical evidence of this relationship is seen in dynamic Asian countries that, in general, show current account surpluses, a correspondingly competitive exchange rate, and high rates of investment and savings. Therefore, they grow based on “foreign dissavings”, despite the common wisdom having it that capital-poor countries should receive savings from capital-rich ones. China, Malaysia and Taiwan illustrate the case, as do Indonesia, South Korea, Malaysia and Thailand, which endured the 1997 balance-of-payments crisis when they abandoned this policy and resorted to foreign savings. A clear relation therefore exists between the exchange rate and growth, as well as between trade surpluses and accelerated growth. A wealth of empirical studies demonstrate the negative effects of the use of foreign savings on domestic savings, which has become known as “savings displacement” in the literature (Edwards, 1995; Reinhart and Talvi, 1998), but these papers lack a theory relating low growth and high use of foreign savings and, therefore, foreign debt.