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Distance to Frontier, Selection, and Economic Growth

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Author Info
Daron Acemoglu
Philippe Aghion
Fabrizio Zilibotti

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Abstract

We analyze an economy where managers engage both in the adaptation 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, countires 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 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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9066.

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Date of creation: Jul 2002
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Handle: RePEc:nbr:nberwo:9066

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Find related papers by JEL classification:
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes

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  1. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December. [Downloadable!] (restricted)
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  2. Acemoglu, Daron & Zilibotti, Fabrizio, 1997. "Was Prometheus Unbound by Chance? Risk, Diversification, and Growth," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 709-51, August.
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