Neoclassical Growth Theory

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This exists in countries and households where there is an inverse relationship between income per capita and fertility rate (Matsuyama, 2008). The framework originated from a criticism of the model developed by Thomas Malthus where he stated that death rates fall and fertility increases when income exceed the equilibrium level, but on the contrary, population growth decreased as income level increased. This difference was because the aspect that was neglected by Malthus was the relationship between the a country’s population and its economy. The neoclassical growth model addressed the problem in investments wherein the growth rate of physical capital would decrease as income would go above the equilibrium level. Becker, et al. (1990) also notes …show more content…
Households size may increase and such change may not correlate to the income and capital level especially for the poor. It is also important to see how the additional member/s affect the household. For example, when the mother gives birth, the income-earners of the household would have to spend more in raising and address the needs of a child. When an adult is added, changes in the welfare of the household may depend on the income level of that person. Changes in household size may affect human and physical capital investments and how the assets, monetary and non-monetary, are allocated among all the members. If in a certain household, the overall income level does not increase as size increased, investments in terms of the health or education may be affected …show more content…
Due to multiple market failures, the poor households are led to behave differently in such a way that reinforces their poverty state. The curve shows the equilibrium for both the poor and non-poor households given the threshold (Barrett et al., 2016). Figure 1 shows the asset endowment and the existence of single or simultaneous poverty trap in households in the Philippines. The horizontal axis A0 shows the baseline period asset holdings and the vertical axis A1 is the 2nd period asset holdings. The 45° line represents the dynamic asset equilibrium (Naschold, 2012). The household livelihood function aa’ shows that there may be more than one equilibrium. In this case, AL and AH are the stable equilibriums and AM represents the unstable equilibrium or the dynamic asset poverty line (Dutta, 2015). Above AM, a household is predicted to be able to accumulate enough capital and is considered non-poor. AH represents the equilibrium at which households would have enough assets to move out of poverty. Households above AL but below AM are still considered poor though they are predicted accumulate assets in time. Even so, they are unable to accumulate enough to escape poverty. Kwak and Smith (2011) describes these thresholds as effective in constraining a household from further growth. Being below AL means that the household is unable to accumulate assets. Barrett et al.
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