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

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 

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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

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