Barriers and the Transition to Modern Growth

Economics

Further details

This paper studies how differences in the size of barriers to capital accumulation can account for differences in long run economic development paths. In this model barriers affect both the beginning date and the pace of the modern economic growth. A fundamental property of the model is that cross-country income differences exhibit an inverted U-shape over time, hence implies a substantial fraction of existing income differences is really a transitional phenomenon. Relative to papers that model this as steady state phenomenon, my model requires a smaller barrier to account for current disparities. Another important finding is that the transitional effect increases significantly when I include the fact that low-income countries have had higher population growth rates during the early development stage than did the currently rich countries. The quantitative exercise shows that given the beginning dates of modern growth, the model accounts for a significant portion of the current income differences.