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Journal Article

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

Bryan S. Graham and Jonathan R. W. Temple
Journal of Economic Growth
Vol. 11, No. 1 (Mar., 2006), pp. 5-41
Published by: Springer
Stable URL: http://www.jstor.org/stable/40216086
Page Count: 37
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Rich Nations, Poor Nations: How Much Can Multiple Equilibria Explain?
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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.

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