Catching Up and Falling Behind

61 Pages Posted: 20 Dec 2012

See all articles by Nancy L. Stokey

Nancy L. Stokey

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: December 12, 2012

Abstract

This paper studies the interaction between technology, a publicly available input that flows in from abroad, and human capital, a private input that is accumulated domestically, as the twin engines of growth in a developing economy. The model displays two types of long run behavior, depending on policies and initial conditions. One is sustained growth, where the economy keeps pace with the technology frontier. The other is stagnation, where the economy converges to a minimal technology level that is independent of the world frontier.

In a calibrated version of the model, transition paths after a policy change can display rapid growth, as in modern growth 'miracles.'

In these economies policies that promote technology inflows are much more effective than subsidies to human capital accumulation in accelerating growth. A policy reversal produces a 'lost decade,' a period of slow growth that permanently reduces the level of income and consumption.

Keywords: growth, technology, human capital, miracle, lost decade

JEL Classification: O40, O38

Suggested Citation

Stokey, Nancy L., Catching Up and Falling Behind (December 12, 2012). Becker Friedman Institute for Research in Economics Working Paper No. 2012-015, Available at SSRN: https://ssrn.com/abstract=2192207 or http://dx.doi.org/10.2139/ssrn.2192207

Nancy L. Stokey (Contact Author)

University of Chicago - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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