Multiple equilibrium, macroeconomic modeling and underdevelopment

Abstract

In this paper we present an analysis of the concept of general equilibrium, its limitations, potential and misinterpretations. We clarify the difference between structural equilibrium and dynamical equilibrium, reflecting on the social and ethical connotations of these two concepts. It is argued that the idea of multiple equilibria is very useful for modeling the macro economy of a developing country and to reflect on the relevance and scope of the policies needed to get out of poverty and underdevelopment traps. We analyze the criticism made to General Equilibrium Models, classifying them into valid and invalid in order to clarify the methodological elements that can be rescued in search of a more realistic macroeconomic modeling.