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When does a developing country use new technologies?

  • Olivier Bruno

    ()

  • Cuong Van
  • Benoît Masquin

We develop a model of optimal pattern of economic development that is first rooted in physical capital accumulation and then in technical progress. We study an economy where capital accumulation and innovative activity take place within a two sector model. The first sector produces a consumption good using physical capital and non skilled labor. Technological progress in the consumption sector is driven by the research activity that takes place in the second sector. Research activity which produces new technologies requires technological capital and skilled labor. New technologies induce an endogenous increase of the Total Factor Productivity of the consumption sector. Physical and technological capital are not substitutable while skilled and non skilled labor may be substitutable. We show that under conditions of the adoption process of new technologies, the optimal strategy for a developing country consists in accumulating physical capital first; postponing the importation of technological capital to the second stage of development. This result is due to a threshold effect from which new technologies begin to have an impact on the productivity of the consumption sector. However, we show that once a certain level of wealth is reached, it becomes optimal for the economy to import technological capital to produce new technologies.

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File URL: http://hdl.handle.net/10.1007/s00199-008-0370-8
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Article provided by Springer & Society for the Advancement of Economic Theory (SAET) in its journal Economic Theory.

Volume (Year): 40 (2009)
Issue (Month): 2 (August)
Pages: 275-300

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Handle: RePEc:spr:joecth:v:40:y:2009:i:2:p:275-300
DOI: 10.1007/s00199-008-0370-8
Contact details of provider: Web page: http://www.springer.com

Web page: http://saet.uiowa.edu/

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