A neoclassical growth model provides an explanation for a "poverty trap", "club convergence", or "twin peaks", in terms of specialisation and international trade. The model has many countries with identical linearly homogeneous technologies for producing three goods using capital and labour. With diverse initial endowments, initial equilibrium has unequal factor prices and two diversification cones. With savings out of wages, following Galor (1996), there may easily be multiple steady states. Poor countries converge to a low steady state while rich countries converge to a high one, even though all share identical technological and behavioural parameters.
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Ventura, Jaume, 2005.
"A Global View of Economic Growth,"
Handbook of Economic Growth,
in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 22, pages 1419-1497
Elsevier.
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