Economic Transformation, Population Growth and the Long-Run World Income Distribution

Joint with: Marcos Chamon

This paper considers the long-run evolution of the world economy in a model in which countries'

opportunities to develop depend on their trade with advanced economies. Trade opportunities in turn

depend on the relative population of the advanced and developing world. As developing countries

become advanced, they further improve the trade prospects for the remaining developing countries.

As long as the population growth differential between developing and advanced countries is not too

large, the rate at which countries transition to prosperity accelerates over time. However, if

population growth differentials are large relative to the transition rate, the world economy converges

to idespread prosperity if and only if the proportion of the world population in advanced countries

is above a critical level. In our baseline calibration the world economy is below that critical level,

but further declines in population growth in the developing world or rapid growth in China would

bring it above that threshold. Even then, the share of the world population living in developing

countries would decrease very slowly. Substantial narrowing of population growth differentials,

increases in the transition rate or the rapid development of India could bring the world economy to

a trajectory of accelerating development.

For more information, contact Stephen Yeaple.