Imitation: A catalyst for innovation and endogenous growth

This paper analyzes how imitation can be a catalyst for innovation—a benefit that is often overlooked in the literature. My research shows that a process of learning to innovate occurs as technology diffuses from a more advanced country to a less developed country; therefore, increasing the recipient country's ability to innovate. I find that the efficiency of labor in the R&D sector of the economy determines whether a country learns how to innovate or not. My research predicts that developing countries that have a healthier and more educated workforce can benefit the most from technology diffusion and are more likely to transition from imitating to innovating. On the other hand, countries that have less efficient R&D workers will continue to imitate products from more developed countries instead of inventing new products. Both the level and growth rate of output and TFP increase if a country manages to transition from imitation to innovation. Examining the dynamics that exist between imitation, innovation, and economic growth is important because it can lead to more effective industrial policy. As the results from this paper show, imitation is beneficial and should be supported and encouraged until it becomes feasible and makes sense economically for a country to switch to innovation. Countries that are dependent on technology diffusion should focus on improving the efficiency of their R&D workers if they want to learn how to invent new products. All of the theoretical results of the model are substantiated by empirical evidence.