The Human Development Trap in Mexico

SummaryA dynamic poverty trap model describing long-term human development is defined in the context of endogenous technological change. Increasing returns are not required: market failures and indivisibilities imply a human capital undersupply and hence above-equilibrium returns. Evidence for this trap is provided for Mexico. High returns to education and early child development, untapped by about 75% of the population, imply an undersupply of human capital. A double-peaked schooling distribution for male and female spouses attests to multiple equilibria. One peak lies beyond complete higher secondary, the other below complete lower secondary schooling. Supporting early child development can help eliminate the trap.