Dynamic Development Accounting and Relative Income Traps

Patrick Imam (pimam@imf.org) and Jonathan Temple

No 2024/229, IMF Working Papers from International Monetary Fund

Abstract: 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.

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 (search for similar items in EconPapers)
Pages: 34
Date: 2024-11-01
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