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Evaluating Explanations for Stagnation

  • Elizabeth M. Caucutt

    (University of Western Ontario)

  • Krishna B. Kumar

    (USC Marshall School of Business)

In this paper, we evaluate four explanations for economic stagnation that have been proposed in the literature: coordination failures, ineffective mix of occupational choices, insufficient human capital accumulation, and politico-economic considerations. We calibrate models that embody these explanations in the context of the stagnant economies of sub-Saharan Africa. The methodology of calibration is ideally suited for this evaluation, given the paucity of high-quality data, the high degree of model nonlinearity, and the need for conducting counterfactual policy experiments. In addition to studying how closely and robustly these models capture the African situation, we examine the quantitative aspects of their policy implications. We find that calibrations that yield multiple equilibria -- one prosperity and the other stagnation -- are not particularly robust. This tempers optimism about the efficacy of one-shot or temporary development policies suggested by models with multiplicity. However, the calibrated models indicate that small policy interventions are sufficient to trigger development in stagnant economies.

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Paper provided by EconWPA in its series Development and Comp Systems with number 0409002.

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Length: 46 pages
Date of creation: 04 Sep 2004
Date of revision:
Handle: RePEc:wpa:wuwpdc:0409002
Note: Type of Document - pdf; pages: 46
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