Working Paper: NBER ID: w12038
Authors: Marcos Chamon; Michael Kremer
Abstract: We construct and calibrate a model of the world economy in which countries' opportunities to develop depend on their trade with advanced economies. Trade opportunities in turn depend on the relative population of the advanced and developing world. As developing countries become advanced, they further improve the trade prospects for the remaining developing countries. As long as the population growth differential between developing and advanced countries is not too large, the rate at which countries transition to prosperity accelerates over time. However, if population growth differentials are large relative to the transition rate, the world economy converges to widespread prosperity if and only if the proportion of the world population in advanced countries is above a critical level. The model suggests that countries which become more open are more likely to grow, but that increased openness by developing countries as a whole may lead to only modest increases in growth for developing countries in aggregate. The rapid rise of China may hurt some developing countries in the short-run, but will open tremendous opportunities for the remaining developing countries in the long-run.
Keywords: Economic Transformation; Population Growth; World Income Distribution
JEL Codes: J11; F43; O41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade openness (F43) | growth (O40) |
| trade integration (F15) | economic growth (O49) |
| population growth differential not too large (J11) | proportion of world population in advanced countries increases indefinitely (F01) |
| population share in advanced countries exceeds critical threshold (J11) | world economy converges to widespread prosperity (F62) |
| trade integration (F15) | export opportunities for others (F10) |
| export opportunities for others (F10) | accelerated growth (O40) |