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Distance to frontier, selection, and economic growth

Acemoglu, D.; Aghion, P.; Zilibotti, F.; (2002) Distance to frontier, selection, and economic growth. (NBER Working Papers 9066). National Bureau of Economic Research: Cambridge, US. Green open access

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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.

Type: Working / discussion paper
Title: Distance to frontier, selection, and economic growth
Open access status: An open access version is available from UCL Discovery
Publisher version: http://www.nber.org/papers/w9066
Language: English
Additional information: Please see http://eprints.ucl.ac.uk/17712/ for the version published in the Journal of the European Economic Association
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/17788
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