Working Paper: CEPR ID: DP1745
Authors: Dan Bendavid
Abstract: This paper focuses on one possible explanation for the empirical evidence of: (a) income convergence among the world?s poorest countries and among its wealthiest countries; and (b) income divergence among most of the remaining countries. The model incorporates the assumption of subsistence consumption into the neo-classical exogenous growth model ? yielding outcomes that are consistent with the convergence-divergence empirical evidence. While subsistence consumption can lead to negative saving and disaccumulation of capital, it can also coincide with positive saving and accumulation of capital. The model predicts that the poorer the country, the lower its saving rate, a result that also appears to be borne out by the evidence provided here.
Keywords: convergence; growth; subsistence consumption
JEL Codes: E1; E2; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| subsistence consumption (D10) | lower saving rates (D14) |
| lower saving rates (D14) | negative growth (F69) |
| subsistence consumption (D10) | negative growth (F69) |
| subsistence consumption (D10) | divergence from wealthier nations (F69) |
| income above subsistence level (E25) | convergence to higher income steady states (F62) |
| subsistence consumption (D10) | disinvestment (L33) |