This paper asks whether the income gap between rich and poor nations can be explained by multiple equilibria. We explore the quantitative implications of a simple two-sector general equilibrium model that gives rise to multiplicity, and calibrate the model for 127 countries. Under the assumptions of the model, around a quarter of the world's economies are found to be in a low output equilibrium. We also find that, since the output gains associated with an equilibrium switch are sizeable, the model can explain between 15 and 25 percent of the variation in the logarithm of GDP per worker across countries.
For the data and Mathematica code we used in calibrating the model, please see the website of my co-author, Bryan Graham. Many of the derivations used for the paper can be found in this unpublished appendix.