The Diffusion of Technology and Inequality Among Nations

One usually accounts for output growth in terms of the growth of the primary inputs: labor, physical capital, and possibly human capital. In this paper we account for growth with labor and with intermediate goods. Because we have no measures of the extent of adoption of most intermediate goods in most countries, we have to assume something about how they spread, based on what we see in U.S. data. We find that if all countries have (al the same production function, (b) the same speed of adoption technology, and (c) imperfectly correlated technology shocks, then we can easily account for the extent and persistence of inequality among nations. Unfortunately, while it easily generates the sorts of low frequency movements that we observe, our technology shock seems to have little to do with high frequency movements in GNP so that if our definition of this shock is correct, real business cycle models are way off the mark.