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Rich Nations, Poor Nations: How Much Can Multiple Equilibria Explain?

  • Bryan Graham
  • Jonathan Temple

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 127 countries. Under the assumptions of the model, around a quarter of the world’s economies are found to be in a low output equilibrium. We also find that, since the output gains associated with an equilibrium switch are sizeable, the model can explain between 15 and 25% of the variation in the logarithm of GDP per worker across countries. Copyright Springer Science + Business Media, Inc. 2006

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File URL: http://hdl.handle.net/10.1007/s10887-006-7404-5
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Article provided by Springer in its journal Journal of Economic Growth.

Volume (Year): 11 (2006)
Issue (Month): 1 (03)
Pages: 5-41

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Handle: RePEc:kap:jecgro:v:11:y:2006:i:1:p:5-41
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