Caught in a Poverty Trap? Testing for Single vs. Multiple Equilibrium Models of Growth

Francisco Rodríguez and Cameron Shelton

Journal of Globalization and Development, 2013, vol. 3, issue 2, 1-25

Abstract: We look for permanent effects to per capita GDP from exogenous, temporary shocks. Our shocks are temporary changes to the export revenues of small, open economies. We find no evidence that even the largest of these temporary shocks, in excess of 9.7% of GDP, produce permanent effects to the growth path of per capita GDP. The inability to reject a single-equilibrium world with shocks of this magnitude suggests that multiple-equilibria, if they exist, are too widely separated to be policy-relevant. Current aid initiatives, which are of a similar magnitude, are not likely to deliver transition to a higher growth path.

Date: 2013
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DOI: 10.1515/jgd-2012-0033

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Journal of Globalization and Development is currently edited by Joseph E. Stiglitz, Kevin Gallagher, Jeronim Capaldo, Arjun Jayadev, José Antonio Ocampo and Dani Rodrik

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