Working Paper: CEPR ID: DP3046
Authors: Bryan S. Graham; Jonathan Temple
Abstract: The idea that income differences between rich and poor nations arise through multiple equilibria or ?poverty traps? is as intuitive as it is difficult to verify. In this Paper, we explore the empirical relevance of such models. We calibrate a simple two-sector model for 127 countries, and use the results to analyse the international prevalence of poverty traps and their consequences for productivity. We also examine the possible effects of multiplicity on the world distribution of income, and identify events in the data that may correspond to equilibrium switching.
Keywords: multiple equilibria; poverty traps; world income distribution
JEL Codes: O11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| multiple equilibria (D50) | productivity levels (O49) |
| poverty traps (I32) | productivity levels (O49) |
| low output equilibrium (D59) | income differences (D31) |
| high output equilibrium (D51) | income differences (D31) |
| structural changes (L16) | transition from low output to high output equilibria (D51) |
| externalities in non-agricultural sector (D62) | multiple equilibria (D50) |
| multiple equilibria (D50) | international income inequality (F40) |
| low output equilibria (D51) | low income outcomes (I32) |
| high output equilibria (D51) | high income outcomes (D31) |