Threshold effects and non-linearities are increasingly recognized to be
present in the development process, and in the effects of policy on
development. Traditionally, threshold effects were present in discussions of "stages of growth" or "the big push" and non-linearity was definitionally present in the Kuznets "inverse-U hypothesis." More
recently, however, questions have been raised about the presumed linearity of many of the effects identified in growth regressions. Do reductions in the fiscal deficit go on producing the same growth effects at ever lower levels of deficit? What is the difference in the marginal benefit from inflation reduction at higher and lower levels of inflation? What is the return to further reduction in tariff levels below 10%? What is the interaction effect between aid and good policies, and is this effect different at different levels of aid and in different policy regimes? Questions such as these suggest the presence of nonlinearities in the development process and in development policy.