The Poverty of Nations: A Quantitative Exploration

Abstract:     
We document regularities in the distribution of relative incomes and investment patterns across countries. We develop a quantitative version of the neoclassical growth model with a broad measure of capital in which investment decisions are affected by distortions. These distortions follow a stochastic process which is common to all countries. The model generates statistics on disparity, mobility, and persistence of incomes and on the relationship between relative incomes and investment-output ratios, which are similar to those in the data. The main discrepancy is that growth rates of income are more persistent in the model than in the data.The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.

JEL Classification: O10, O11, O57, H20

working papers series