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

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  • Bryan S. Graham
  • Jonathan Temple

Abstract

The idea that income differences between rich and poor nations arise through multiple equilibria or 'poverty traps' is as intuitive as it is difficult to verify. In this paper, we explore the empirical relevance of such models. We calibrate a simple two sector model for 127 countries, and use the results to analyze the international prevalence of poverty traps and their consequences for productivity. We also examine the possible effects of multiplicity on the world distribution of income, and identify events in the data that may correspond to equilibrium switching.

Suggested Citation

  • Bryan S. Graham & Jonathan Temple, 2001. "Rich Nations, Poor Nations: How Much Can Multiple Equilibria Explain?," CID Working Papers 76A, Center for International Development at Harvard University.
    • Handle: RePEc:cid:wpfacu:76a
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    More about this item

    Keywords

    poverty traps; multiple equilibria; 'Big Push'; TFP differences; calibration methods;

    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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