Distance to Frontier, Selection, and Economic Growth

54 Pages Posted: 12 Jan 2004

See all articles by Daron Acemoglu

Daron Acemoglu

Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Philippe Aghion

College de France and London School of Economics and Political Science, Fellow; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Fabrizio Zilibotti

Centre for Economic Policy Research (CEPR); Yale University

Multiple version iconThere are 3 versions of this paper

Date Written: June 25, 2002

Abstract

We analyze an economy where managers engage both in the adoption 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, countries 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 an 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.

Keywords: appropriate institutions, convergence, economic growth, innovation, imitation, political economy of growth, selection, technical change, traps.

JEL Classification: O31, O33, O38, O40, L16

Suggested Citation

Acemoglu, Daron and Aghion, Philippe and Zilibotti, Fabrizio and Zilibotti, Fabrizio, Distance to Frontier, Selection, and Economic Growth (June 25, 2002). Available at SSRN: https://ssrn.com/abstract=485483 or http://dx.doi.org/10.2139/ssrn.485483

Daron Acemoglu (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Philippe Aghion

College de France and London School of Economics and Political Science, Fellow ( email )

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Fabrizio Zilibotti

Yale University ( email )

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Centre for Economic Policy Research (CEPR)

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United Kingdom

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