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Rich nations, poor nations: how much can multiple equilibria explain?

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  • Bryan S. Graham
  • Jonathan R. W. Temple

Abstract

This paper asks whether the income gap between rich and poor nations can be explained by multiple equilibria. We explore the quantitative implications of a simple two sector general equilibrium model that gives rise to multiplicity, and calibrate the model for a large number of countries. Under the assumptions of the model, around a quarter of the world’s economies are found to be in a low output equilibrium. The output gains associated with an equilibrium switch are sizeable, but well short of the vast income disparity observed in the data.

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  • Bryan S. Graham & Jonathan R. W. Temple, 2004. "Rich nations, poor nations: how much can multiple equilibria explain?," The Institute for International Integration Studies Discussion Paper Series iiisdp017, IIIS.
    • Handle: RePEc:iis:dispap:iiisdp017
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    More about this item

    Keywords

    poverty traps; multiple equilibria; TFP differences; calibration;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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