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Distance to Frontier, Selection, and Economic Growth

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  • Daron Acemoglu
  • Philippe Aghion
  • Fabrizio Zilibotti

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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Bibliographic Info

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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Publication status: published as Daron Acemoglu & Philippe Aghion & Fabrizio Zilibotti, 2006. "Distance to Frontier, Selection, and Economic Growth," Journal of the European Economic Association, MIT Press, vol. 4(1), pages 37-74, 03.
Handle: RePEc:nbr:nberwo:9066

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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.
  2. Howitt, Peter & Mayer-Foulkes, David, 2005. "R&D, Implementation, and Stagnation: A Schumpeterian Theory of Convergence Clubs," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(1), pages 147-77, February.
  3. Joseph Zeira, 1998. "Workers, Machines, And Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1091-1117, November.
  4. Daron Acemoglu & Fabrizio Zilibotti, 1994. "Was Prometheus unbound by chance? Risk, diversification and growth," Economics Working Papers 98, Department of Economics and Business, Universitat Pompeu Fabra.
  5. Hassler, John & Rodríguez Mora, José Vicente, 1998. "IQ, Social Mobility and Growth," CEPR Discussion Papers 1827, C.E.P.R. Discussion Papers.
  6. Brezis, Elise S & Krugman, Paul R & Tsiddon, Daniel, 1993. "Leapfrogging in International Competition: A Theory of Cycles in National Technological Leadership," American Economic Review, American Economic Association, vol. 83(5), pages 1211-19, December.
  7. Tong, Jian & Xu, Cheng-Gang, 2004. "Financial Institutions and the Wealth of Nations: Tales of Development," CEPR Discussion Papers 4348, C.E.P.R. Discussion Papers.
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