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

  • Bryan S. Graham
  • Jonathan R. W. 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 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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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp017.

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Date of creation: 01 Jan 2004
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