Distance to Frontier, Selection, and Economic Growth

Daron Acemoglu, Philippe Aghion and Fabrizio Zilibotti

No 9066, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: O31 O33 (search for similar items in EconPapers)
Date: 2002-07
New Economics Papers: this item is included in nep-dev, nep-ent, nep-lam, nep-ltv and nep-mac
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (141)

Published as Daron Acemoglu & Philippe Aghion & Fabrizio Zilibotti, 2006. "Distance to Frontier, Selection, and Economic Growth," Journal of the European Economic Association, MIT Press, vol. 4(1), pages 37-74, 03.

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Related works:
Journal Article: Distance to Frontier, Selection, and Economic Growth (2006)
Working Paper: Distance to Frontier, Selection, and Economic Growth (2006)
Working Paper: Distance to Frontier, Selection, and Economic Growth (2002)
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