@techreport{NBERw9066, title = "Distance to Frontier, Selection, and Economic Growth", author = "Daron Acemoglu and Philippe Aghion and Fabrizio Zilibotti", institution = "National Bureau of Economic Research", type = "Working Paper", series = "Working Paper Series", number = "9066", year = "2002", month = "July", doi = {10.3386/w9066}, URL = "http://www.nber.org/papers/w9066", 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.}, }