The Knowledge-Diffusion Bottleneck in Economic Growth and Development

If learning and teaching were easy, the whole world would be developed and frontier knowledge would spread quickly. But learning is difficult and there is a finite capacity for teaching. The concept of a knowledge-diffusion ``bottleneck'' can be used to explain why there is a negative correlation between per-capita income growth rates and fertility rates, especially amongst countries that are in the early stages of industrialization. It can also explain why income distributions in rich countries have power-law tails (both upper and lower) and why income growth rates are independent of scale. A simple model of knowledge diffusion is calibrated to the observed paths of structural transformation in newly-industrializing countries. The resulting parameters are found to be consistent with the tail exponents seen in U.S. income data, suggesting a common mechanism of knowledge diffusion operating in developing countries and fully-developed countries.