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Dynamic Development Accounting and Relative Income Traps
Author:
Patrick A. Imam
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Jonathan R. W. Temple
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Series:
IMF Working Papers
Volume/Issue:
Volume 2024: Issue 229
Language:
English
Publication Date:
01 Nov 2024
DOI:
https://doi.org/10.5089/9798400293276.001
ISBN:
9798400293276
ISSN:
1018-5941
Pages:
34
Keywords:
Economic growth; development accounting; low-income trap; poverty trap; income trap; state Markov chains; country sample; OECD member country; relative TFP; Total factor productivity; Human capital; Growth accounting; Income; Capital productivity; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Previous research suggests that economy-wide poverty traps are rarely observed in the data. In this paper, we explore a related hypothesis: low-income countries rarely improve their position relative to the US. Using finite state Markov chains, we show that upwards mobility is indeed limited. Since capital-output ratios are similar across countries, and human capital is also converging, the persistence of low relative income seems to originate in the persistence of low relative TFP. We study the dynamics of relative TFP and how they interact with absolute levels of human capital, casting new light on the future of convergence.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund