The Poverty of Nations: A Quantitative Exploration

69 Pages Posted: 12 Jun 2000 Last revised: 29 Aug 2014

See all articles by Varadarajan V. Chari

Varadarajan V. Chari

University of Minnesota - Twin Cities - Department of Economics; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER)

Patrick J. Kehoe

Federal Reserve Bank of Minneapolis - Research Department; University of Minnesota - Twin Cities - Department of Economics; National Bureau of Economic Research (NBER)

Ellen R. McGrattan

Federal Reserve Bank of Minneapolis - Research Department; University of Minnesota - Twin Cities; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: January 1996

Abstract

We document regularities in the distribution of relative incomes and patterns of investment in countries and over time. 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. Our model generates a panel of outcomes which we compare to the data. In both the model and the data, there is greater mobility in relative incomes in the middle of the income distribution than at the extremes. The 10 fastest growing countries and the 10 slowest growing countries in the model have growth rates and investment-output ratios similar to those in the data. In both the model and the data, the `miracle' countries have nonmonotonic investment-output ratios over time. The main quantitative discrepancy between the model and the data is that there is more persistence in growth rates of relative incomes in the model than in the data.

Suggested Citation

Chari, Varadarajan V. and Kehoe, Patrick J. and McGrattan, Ellen R., The Poverty of Nations: A Quantitative Exploration (January 1996). NBER Working Paper No. w5414. Available at SSRN: https://ssrn.com/abstract=225474

Varadarajan V. Chari (Contact Author)

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
1108 Management & Economics
Minneapolis, MN 55455
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612-626-7151 (Phone)

Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
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National Bureau of Economic Research (NBER)

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Patrick J. Kehoe

Federal Reserve Bank of Minneapolis - Research Department ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States
612-204-5525 (Phone)
612-204-5515 (Fax)

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
Minneapolis, MN 55455
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ellen R. McGrattan

Federal Reserve Bank of Minneapolis - Research Department ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States
612-340-2587 (Phone)
612-340-2356 (Fax)

University of Minnesota - Twin Cities

420 Delaware St. SE
Minneapolis, MN 55455
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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