Year: 2002
Type: report
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.
DOI: 10.3386/w9066
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2890594213