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Population Growth and Multiple Equilibria: Inferences from a Modified Ramsey Model

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  • Lehmijoki, Ulla

    (University of Helsinki)

Abstract

The demographic transition is introduced into the otherwise standard Ramsey model to generate multiple equilibria, poverty traps, and demography-driven cycles. The model is calibrated for global data to explore the demographic conditions under which multiplicity is realized. Three cases arise, referring either to unique or multiple equilibria, and to transitional cycles. The calibrated model shows that multiple equilibria can explain a considerable fraction of the global income gap. The model provides a test to distinguish the trapped countries from those which just suffer from a long-lasting demographic recession, showing that the latter are more common than the former. Therefore, the economic effects of the demographic transition, even though considerable, are temporary rather than permanent.

Suggested Citation

  • Lehmijoki, Ulla, 2011. "Population Growth and Multiple Equilibria: Inferences from a Modified Ramsey Model," IZA Discussion Papers 5469, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp5469
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    References listed on IDEAS

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    1. David de la Croix & Matthias Doepke, 2003. "Inequality and Growth: Why Differential Fertility Matters," American Economic Review, American Economic Association, vol. 93(4), pages 1091-1113, September.
    2. de la Croix, David & Doepke, Matthias, 2004. "Public versus private education when differential fertility matters," Journal of Development Economics, Elsevier, vol. 73(2), pages 607-629, April.
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    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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