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

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  • Bryan Graham
  • Jonathan 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 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

Suggested Citation

  • Bryan Graham & Jonathan Temple, 2006. "Rich Nations, Poor Nations: How Much Can Multiple Equilibria Explain?," Journal of Economic Growth, Springer, vol. 11(1), pages 5-41, March.
    • Handle: RePEc:kap:jecgro:v:11:y:2006:i:1:p:5-41
    DOI: 10.1007/s10887-006-7404-5
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    More about this item

    Keywords

    Poverty traps; Multiple equilibria; TFP differences; Calibration; C00; O14; O41; O47;
    All these keywords.

    JEL classification:

    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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    1. Rich Nations, Poor Nations: How Much Can Multiple Equilibria Explain? (JEG 2006) in ReplicationWiki

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