Distance to Frontier, Selection, and Economic Growth

Philippe Aghion, Daron Acemoglu and Fabrizio Zilibotti

No 3467, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We analyse 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, which encourage the investment-based strategy may be beneficial. Societies that cannot switch out of the investment-based strategy, however, 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 (search for similar items in EconPapers)
JEL-codes: L16 O31 O33 O38 O40 (search for similar items in EconPapers)
Date: 2002-07
New Economics Papers: this item is included in nep-dev and nep-lam
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Citations: View citations in EconPapers (155)

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Related works:
Journal Article: Distance to Frontier, Selection, and Economic Growth (2006)
Working Paper: Distance to Frontier, Selection, and Economic Growth (2006)
Working Paper: Distance to Frontier, Selection, and Economic Growth (2002)
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