Accounting for Growth Disparity: Lucas's Framework Revisited

• Published date: 01 August 2017
• DOI: http://doi.org/10.1111/rode.12297
• Date: 01 August 2017

Accounting for Growth Disparity: Lucas’s

Framework Revisited

Kei Hosoya*

Abstract

This paper proposes a theoretical method to account for historical episodes of growth disparity. A

numerical computation shows that the properties of the local dynamics of the proposed model are

consistent with the facts indicated by selected episodes.

1. Introduction

A seminal paper by Lucas (1993) provided a framework to model income growth

disparity during national economic development. The aim of the present study is to

take that framework into consideration and address the problem from a new

viewpoint based on a simple growth model with multiple equilibria. The growth

episodes in the Philippines and South Korea considered by Lucas are frequently

discussed in the literature on growth, but here we quote Lucas to summarize some

core facts.

In 1960, the Philippines and South Korea had about the same standard of living, as

measured by their per capita GDPs [gross domestic products] of about $640 U.S. 1975.

The two countries were similar in many other respects .... From 1960 to 1988, GDP per

capita in the Philippines grew at about 1.8 percent per year, about the average for per

capita incomes in the world as a whole. In Korea, over the same period, per capita

income grew at 6.2 percent per year, a rate consistent with the doubling of living

standards every 11 years. (Lucas, 1993, p. 251)

A number of researchers have theoretically or empirically addressed this sort of

pattern, in which countries with similar economic fundamentals exhibit markedly

different growth.

1

In particular, it is well established that growth disparity can be

accounted for by using a dynamic general equilibrium model with growth (or

convergence) path indeterminacy. This line of research generally assumes that

diversified growth patterns arise during the transition process to the uniquely

determined long-run equilibrium. However, a theory that admits the possibility of

an economy reaching a different steady state in the long run is more persuasive. To

achieve such a model, dual steady states should be reachable in the global context.

Therefore, a typical single-equilibrium model with multiple converging paths is

*Hosoya (Correspondingauthor): Faculty of Economics, Tohoku Gakuin University, 1-3-1 Tsuchitoi, Aoba-

ku, Sendai, Miyagi, 980-8511, Japan. Tel: +81-22-721-3345. E-mail: khosoya@mail.tohoku-gakuin.ac.jp.

Helpful comments from the editor and anonymous referee of this journal are gratefully acknowledged. The

author also thanks Kazumi Asako, Masakatsu Nakamura, Takashi Kano, Yoshinobu Matsui, Akiyuki

Tonogi and Gang Li for their comments and suggestions. This work was financially supported by Grants-in-

Aid for Young Scientists (B) 24730251 and for Scientific Research (C) 15K03448 from the Japan Society for

the Promotion of Science. The author is responsible for any remaining errors.

Review of Development Economics, 21(3), 874–887, 2017

DOI:10.1111/rode.12297

©2016 John Wiley & Sons Ltd