Distance to Frontier, Selection, and Economic Growth / Daron Acemoglu, Philippe Aghion, Fabrizio Zilibotti.

Format:

Book

Author/Creator:

Acemoglu, Daron.

Contributor:

National Bureau of Economic Research.

Aghion, Philippe.

Zilibotti, Fabrizio.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9066.

NBER working paper series no. w9066

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2002.

Summary:

We analyze an economy where managers engage both in the adaptation of technologies from the world frontier and in innovation activities. The selection of high-skill managers is more important for innovation activities. As the economy approaches the technology frontier, selection becomes more important. As a result, countires at early stages of development pursue an investment-based strategy, with long term relationships, high average size and age of firms, large average investments, but little selection. Closer to the world technology frontier, there is a switch to innovation-based strategy with short-term relationships, younger firms, less investment and better selection of managers. We show that relatively backward economies may switch out of the investment-based strategy too soon, so certain economic institutions and policies, such as limits on product market competition or investment subsidies, that encourage the investment-based strategy may be beneficial. However, societies that cannot switch out of the investment-based strategy fail to converge to the world technology frontier. Non-convergence traps are more likely when policies and institutions are endogenized, enabling beneficiaries of existing policies to bribe politicians to maintain these policies.

Notes:

Print version record

July 2002.