Technology catch-up and the role of institutions

The aim of the paper is to investigate the effect of differences in institutional quality on the process of technology catch-up across countries. Empirical evidence shows that countries endowed with better institutions present higher TFP growth rates and faster rates of technology adoption and, as a result, are the ones that are more rapidly closing the gap with the frontier. Conversely, countries lacking a minimum institutional level diverge in the long-run and do not to catch up. Some institutions, however, play an ambiguous role in the creation and adoption of technology. We find that the tightening of Property Rights reduces the ability of followers to freely imitate technology thus slowing down their catch-up rate. This negative effect is stronger the farther away the countries are from the frontier. Other institutional categories such as openness to trade, instead, benefit both leaders and followers.