The poverty of nations: a quantitative exploration

Varadarajan Chari, Patrick Kehoe and Ellen McGrattan

No 204, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: We ask what fraction of the variation in incomes across countries can be accounted for by investment distortions. In our neoclassical growth model the relative price of investment to consumption is a good measure of the distortions. Using data on relative prices we estimate a stochastic process for distortions and compare the resulting variance of incomes in the model to that in the data. We find that the variation of incomes in the model is roughly 4/5 of the variability of incomes in the data. Our model does well in accounting for 6 key regularities on income and investment in the data. The paper itself is followed by three appendices: Appendix 1 describing the log-likelihood function, Appendix 2 describing the construction of labor share of income associated with the production of consumption and investment goods, and the Data Appendix.

Keywords: Income; distribution (search for similar items in EconPapers)
Date: 1997
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Citations: View citations in EconPapers (49)

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Related works:
Working Paper: The Poverty of Nations: A Quantitative Exploration (1996)
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