Journal of Economic Growth

, Volume 11, Issue 1, pp 5–41

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

  • Bryan S. Graham
  • Jonathan R. W. Temple
Original Article

DOI: 10.1007/s10887-006-7404-5

Cite this article as:
Graham, B.S. & Temple, J.R.W. J Econ Growth (2006) 11: 5. doi:10.1007/s10887-006-7404-5

Abstract

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 127 countries. Under the assumptions of the model, around a quarter of the world’s economies are found to be in a low output equilibrium. We also find that, since the output gains associated with an equilibrium switch are sizeable, the model can explain between 15 and 25% of the variation in the logarithm of GDP per worker across countries.

Keywords

Poverty traps Multiple equilibria TFP differences Calibration 

JEL Classification

C00 O14 O41 O47 

Copyright information

© Springer Science + Business Media, Inc. 2006

Authors and Affiliations

  • Bryan S. Graham
    • 1
  • Jonathan R. W. Temple
    • 2
  1. 1.Department of EconomicsUniversity of California — BerkeleyBerkeleyUSA
  2. 2.Department of EconomicsUniversity of BristolBristolUK