Distance to Frontier, Selection, and Economic Growth

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ID: 292248
2006
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Abstract
We analyze an economy where firms undertake both innovation and adoption of technologies from the world technology frontier. The selection of high-skill managers and firms is more important for innovation than for adoption. As the economy approaches the frontier, selection becomes more important. Countries at early stages of development pursue an investment-based strategy, which relies on existing firms and managers to maximize investment but sacrifices selection. Closer to the world technology frontier, economies switch to an innovation-based strategy with short-term relationships, younger firms, less investment, and better selection of firms and managers. We show that relatively backward economies may switch out of the investment-based strategy too soon, so certain policies such as limits on product market competition or investment subsidies, which encourage the investment-based strategy, may be beneficial. However, these policies may have significant long-run costs because they make it more likely that a society will be trapped in the investment-based strategy and fail to converge to the world technology frontier.
Reference Key
openalex_W3125767605 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Daron Acemoğlu, Philippe Aghion, Fabrizio Zilibotti
Journal journal of the european economic association
Year 2006
DOI
10.1162/jeea.2006.4.1.37
URL
https://academic.oup.com/jeea/article-pdf/4/1/37/10312961/jeea0037.pdf
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