IMF Working Papers

Dynamic Development Accounting and Relative Income Traps

By Patrick A. Imam, Jonathan R. W. Temple

November 1, 2024

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Patrick A. Imam, and Jonathan R. W. Temple "Dynamic Development Accounting and Relative Income Traps", IMF Working Papers 2024, 229 (2024), accessed December 21, 2024, https://doi.org/10.5089/9798400293276.001

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Disclaimer: 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.

Summary

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.

Subject: Capital productivity, Economic growth, Growth accounting, Human capital, Income, Labor, National accounts, Production, Total factor productivity

Keywords: Capital productivity, Country sample, Development accounting, Economic growth, Global, Growth accounting, Human capital, Income, Income trap, Low-income trap, OECD member country, Poverty trap, Relative TFP, State Markov chains, Total factor productivity

Publication Details

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