Innovation and Imitation at Various Stages of Development

A simple model of imitation and innovation is developed to explain a complicated picture of relative productivity growth in different countries. The model makes difference between global and local innovations and does not assume that a country always imitates the most advanced technology. It is shown that there are three types of stationary states, where only imitation, only innovation or a mixed policy prevails. We demonstrate how one can find the stationary states and check their stability for a broad class of imitation-innovation cost functions. Using World Bank statistical data for the period of 1980-1999, we reveal the dependence of innovation and imitation costs on GDP per capita measured in PPP and on an indicator of investment risk. An appropriate choice of two adjustment parameters of the model gives a possibility to generate trajectories of more than 80 countries and, for most of them, get qualitatively correct pictures of their movement. It turns out that three groups of countries behave differently, and there is a tendency to converge inside each group. Increase in institutional quality get countries out of underdevelopment traps, from the imitation area to a better steady state where local innovations and imitations are jointly used. All countries with high quality of institutions are moving toward the area where pure innovation policy prevails.