Innovation and Inequality in a Small World
CEGE Discussion Paper Number 313 – June 2017
42 Pages Posted: 20 Jun 2017
Date Written: June 19, 2017
We present a multi-country theory of economic growth and R&D driven technological progress in which countries are connected by a network of knowledge exchange. Technological progress in any country depends on the state of technology in the countries it exchanges knowledge with. The diffusion of knowledge throughout the world explains a period of increasing world inequality after the take-off of the forerunners of the industrial revolution, followed by decreasing relative inequality. Knowledge diffusion through a Small World network produces an extraordinary diversity of country growth performances, including the overtaking of individual countries and the replacement of the technologically leading country in the course of world development.
Keywords: networks, knowledge diffusion, economic growth, world income distribution
JEL Classification: O10; O40; D85; F43
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