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Searching for Prosperity

  • Michael Kremer
  • Alexei Onatski
  • James Stock

Quah's [1993a] transition matrix analysis of world income distribution based on annual data suggests an ergodic distribution with twin peaks at the rich and poor end of the distribution. Since the ergodic distribution is a highly non-linear function of the underlying transition matrix estimated extremely noisily. Estimates over the foreseeable future are more precise. The Markovian assumptions underlying the analysis are much better satisfied with an analysis based on five-year transitions than one-year transitions. Such an analysis yields an ergodic distribution with 72% of mass in the top income category, but a prolonged transition, during which some inequality measures increase. The rosy ergodic forecast and prolonged transition arise because countries' relative incomes move both up and down at moderate levels, but once countries reach the highest income category, they rarely leave it. This is consistent with a model in which countries search among policies until they reach an income level at which further experimentation is too costly. If countries can learn from each other's experience, the future may be much brighter than would be predicted based on projecting forward the historical transition matrix.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8250.

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Date of creation: Apr 2001
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Publication status: published as Kremer, Michael & Onatski, Alexei & Stock, James, 2001. "Searching for prosperity," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 55(1), pages 275-303, December.
Handle: RePEc:nbr:nberwo:8250
Note: EFG
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  1. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  2. Charles I. Jones, . "On the Evolution of the World Income Distribution," Working Papers 97009, Stanford University, Department of Economics.
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  9. Esteban, Joan & Ray, Debraj, 1994. "On the Measurement of Polarization," Econometrica, Econometric Society, vol. 62(4), pages 819-51, July.
  10. Quah, Danny T, 1997. " Empirics for Growth and Distribution: Stratification, Polarization, and Convergence Clubs," Journal of Economic Growth, Springer, vol. 2(1), pages 27-59, March.
  11. A. Desdoigts, 1995. "Changes in the World Income Distribution: a Non-Parametric Approach to Challenge the Neo-Classical Convergence Argument," SFB 373 Discussion Papers 1995,15, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  12. Danny Quah, 1992. "Empirical cross-section dynamics in economic growth," Discussion Paper / Institute for Empirical Macroeconomics 75, Federal Reserve Bank of Minneapolis.
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  15. Quah, Danny, 1997. "Empirics for Growth and Distribution: Stratification, Polarization, and Convergence Clubs," CEPR Discussion Papers 1586, C.E.P.R. Discussion Papers.
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