We document five stylized facts of economic growth. (1) The “residual ” rather than factor accumulation accounts for most of the income and growth differences across nations. (2) Income diverges over the long run. (3) Factor accumulation is persistent while growth is not persistent and the growth path of countries exhibits remarkable variation across countries. (4) Economic activity is highly concentrated, with all factors of production flowing to the richest areas. (5) National policies closely associated with long-run economic growth rates. We argue that these facts do not support models with diminishing returns, constant returns to scale, some fixed factor of production, and that highlight the role of factor accumulation. Empirical work, however, does not yet decisively distinguish among the different theoretical conceptions of “total factor productivity growth.” Economists should devote more effort towards modeling and quantifying total factor productivity.

This essay discusses the effect of technical change on wage inequality. I argue that the behavior of wages and returns to schooling indicates that technical change has been skill-biased during the past sixty years. Furthermore, the recent increase in inequality is most likely due to an acceleration in skill bias. In contrast to twentiethcentury developments, much of thr technical change during the early nineteenth century appears to be skill-replacing. I suggest that this is because the increased supply of unskilled workers in the English cities made the introduction of these technologies profitable. On the other hand, the twentieth century has been characterized by skillbiased technical change because the rapid increase in the supply of skilled workers has induced the development of skill-complementary technologies. The recent acceleration in skill bias is in turn likely to have been a response to the acceleration in the supply of skills during the past several decades.

This paper investigates the relationship between product market competition (PMC) and innovation. A growth model is developed in which competition may increase the incremental profit from innovating; on the other hand, competition may also reduce innovation incentives for laggards. There are four key predictions. First, the relationship between product market competition (PMC) and innovation is an inverted U-shape. Second, the equilibrium degree of technological ‘neck-and-neckness ’ among firms should decrease with PMC. Third, the higher the average degree of ‘neck-and-neckness ’ in an industry, the steeper the inverted-U relationship. Fourth, firms may innovate more if subject to higher debt-pressure, especially at lowerlevelsofPMC.Weconfrontthese predictions with data on UK firms ’ patenting activity at the US patenting office. They are found to accord well with observed behavior. Acknowledgement: The authors would like to thank Daron Acemoglu, Tim Bresnahan,

This chapter is motivated by the recent resurgence of interest in the economics of growth. Among macroeconomists, the shift of research effort is near total, eclipsing the business-cycle focus that had dominated the field for decades. Behind this is a recognition of the enormous welfare implications of sustained economic growth, and a renewed desire

This paper investigates the role of social learning in the diffusion of a new agricultural technology in Ghana. We use unique data on farmers ’ communication patterns to define each individual’s information neighborhood, the set of others from whom he might learn. Our empirical strategy is to test whether farmers adjust their inputs to align with those of their information neighbors who were surprisingly successful in previous periods. We present evidence that farmers adopt surprisingly successful information neighbors ’ practices, conditional on many potentially confounding factors including common growing conditions, credit arrangements, clan membership, and religion. The relationship of these input adjustments to experience further supports their interpretation as resulting from social learning. In ad-The authors have benefittedfromtheadviceofRichardAkresh,Federico Bandi, Alan Bester, Dirk Bergemann,

I analyze an economy in which pro...t-maximizing ...rms can undertake both laboror capital-augmenting technological improvements. In the long run, the economy looks like the standard growth model with purely labor-augmenting technical change, and the share of labor in GDP is constant. Along the transition path, however, there is capitalaugmenting technical change and factor shares change. A range of policies may have counterintuitive implications due to their eect on the direction of technical change. For example, taxes on capital income reduce the labor share in the short run, but increase it in the medium/long run. Keywords: Economic Growth, Endogenous Growth, Factor Shares, Technical Change. JEL Classi...cation: O33, O14, O31, E25. I thank Manuel Amador, Abhijit Banarjee, Olivier Blanchard, and Jaume Ventura for useful comments. y Massachusetts Institute of Technology, Department of Economics, E52-371, Cambridge, MA 02319; e-mail: daron@mit.edu 1 I.

I document in this paper a puzzle that has not received previous attention in the literature. In 1980-98, median per capita income growth in developing countries was 0.0 percent, as compared to 2.5 percent in 1960-79. Yet I document in this paper that variables that are standard in growth regressions -- policies like financial depth and real overvaluation, and initial conditions like health, education, fertility, and infrastructure generally improved from 1960-79 to 1980-98. Developing country growth should have increased instead of decreased according to the standard growth regression determinants of growth. The stagnation seems to represent a disappointing outcome to the movement towards the "Washington Consensus" by developing countries. I speculate that worldwide factors like the increase in world interest rates, the increased debt burden of developing countries, the growth slowdown in the industrial world, and skill-biased technical change may have contributed to the developing countries' stagnation, although I am not able to establish decisive evidence for these hypotheses. I also document that many growth regressions are mis-specified in a way similar to the Jones (1995) critique that a stationary variable (growth) is being regressed on non-stationary variables like policies and initial conditions. It may be that the 1960-79 period was the unusual period for LDC growth, and the 1980-98 stagnation of poor countries represents a return to the historical pattern of divergence between rich and poor countries.

I discuss the concept and empirical importance of intemational technology diffusion from the point of view of recent work on endogenous technological change. In this literature, technologyis viewed as technological knowledge. I first review the maj or concepts, and how intemational technology diffusion relates to other factors affecting economic growth in open economies. The following main section of the paper provides a review of recent empirical results on (i) basic results in intemational technology diffusion; (ii) the importance of specific channels of diffusion, in particular trade and foreign direct investment; (iii) the spatial distribution of technological knowledge, and (iv) other issues.

We introduce imperfect creditor protection in a multi-country version of Schumpeterian growth theory with technology transfer. The theory predicts that the growth rate of any country with more than some critical level of financial development will converge to the growth rate of the world technology frontier, and that all other countries will have a strictly lower long-run growth rate. The theory also predicts that in a country that converges to the frontier growth rate, financial development has a positive but eventually vanishing effect on steady-state per-capita GDP relative to the frontier. We present cross-country evidence supporting these two implications. In particular, we find a significant and sizeable effect of an interaction term between initial per-capita GDP (relative to the United States) and a financial intermediation measure in an otherwise standard growth regression, implying that the likelihood of converging to the U.S. growth rate increases with financial development. We also find that, as predicted by the theory, the direct effect of financial intermediation in this regression is not significantly different from zero. These findings are robust to alternative conditioning sets, estimation procedures and measures of financial development.

Abstract: The authors have worked on innovation systems for more than a decade. This paper is an attempt to take stock. In section 2 we reflect upon the emergence and fairly rapid diffusion of the concept ‘national system of innovation ’ as well as related concepts. In section 3 we describe how the Aalborg version of the concept evolved by a combination of ideas that moved from production structure towards including all elements and relationships contributing to innovation and competence building. In section 4 we discuss the challenges involved both in a theoretical deepening of a fairly narrow version of the concept and in the movement toward the broader approach and in adapting the concept for the analysis of poor countries.