Distance to Frontier, Selection, and Economic Growth

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Distance to Frontier, Selection, and Economic Growth

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Title: Distance to Frontier, Selection, and Economic Growth
Author: Zilibotti, Fabrizio; Aghion, Philippe; Acemoglu, Daron

Note: Order does not necessarily reflect citation order of authors.

Citation: Acemoglu, Daron, Philippe Aghion, and Fabrizio Zilibotti. 2006. Distance to frontier, selection, and economic growth. Journal of the European Economic Association 4(1): 37-74.
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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.
Published Version: doi:10.1162/jeea.2006.4.1.37
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:4554122

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  • FAS Scholarly Articles [6898]
    Peer reviewed scholarly articles from the Faculty of Arts and Sciences of Harvard University
 
 

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