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

34 Pages Posted: 3 Jun 2005

See all articles by Bryan S. Graham

Bryan S. Graham

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER)

Jonathan R.W. Temple

Centre for Economic Policy Research (CEPR)

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Date Written: January 2004

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 a large number of countries. Under the assumptions of the model, around a quarter of the world's economies are found to be in a low output equilibrium. The output gains associated with an equilibrium switch are sizeable, but well short of the vast income disparity observed in the data.

Keywords: Poverty traps, multiple equilibria, TFP differences, calibration

Suggested Citation

Graham, Bryan S. and Temple, Jonathan R.W., Rich Nations, Poor Nations: How Much Can Multiple Equilibria Explain? (January 2004). IIIS Discussion Paper No. 17. Available at SSRN: https://ssrn.com/abstract=734264 or http://dx.doi.org/10.2139/ssrn.734264

Bryan S. Graham (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jonathan R.W. Temple

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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