Distance to frontier, selection, and economic growth
By: [by] Daron Acemoglu, Philippe Aghion [and] Fabrizio Zilibotti
Contributors: Aghion, Philippe; Zilibotti, Fabrizio; Massachusetts Institute of Technology. Dept. of Economics
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 04-03; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 04-03.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2002
Place of publication: Cambridge, MA
Language: eng
Number of pages: 48
Description: We analyze an economy where managers engage both in the adoption of technologies from the world frontier and in innovation activities. The selection of high-skill managers is more important for innovation activities. As the economy approaches the technology frontier, selection becomes more important. As a result, countries at early stages of development pursue an investment-based strategy, with long-term relationships, high average size and age of firms, large average investments, but little selection. Closer to the world technology frontier, there is a switch to an innovation-based strategy with short-term relationships, younger firms, less investment and better selection of managers. We show that relatively backward economies may switch out of the investment-based strategy too soon, so certain economic institutions and policies, such as limits on product market competition or investment subsidies, that encourage the investment-based strategy may be beneficial. However, societies that cannot switch out of the investment based strategy fail to converge to the world technology frontier. Non-convergence traps are more likely when policies and institutions are endogenized, enabling beneficiaries of existing policies to bribe politicians to maintain these policies. Keywords: appropriate institutions, convergence, economic growth, innovation, imitation, political economy of growth, selection, technical change, traps. JEL Classifications: O31, O33, O38, O40, L16.
Notes: "June 25, 2002."

Includes bibliographical references (p. 43-46).

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