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.

We provide a theoretical explanation, based on Schumpeterian growth theory, for the divergence in per-capita income that has taken place between countries since the mid 19th Century, as well as for the convergence that took place between the richest countries during the second half of the 20th Century. The argument is based on the premise that technological change underwent a fundamental transformation in the 19th Century, associated with new scientific ideas and the increasingly scientific content of new technologies. We model this transformation as the introduction of a new method for producing innovations, which we call “modern R&D”. In order to use this method a country’s entrepreneurs must have at least some minimum level of skills, which depends on the technological frontier. Countries not fulfilling this requirement can only create new technologies through an older method, which we call “implementation”. A multi-country Schumpeterian growth model incorporating these ideas implies that countries will sort themselves into three groups. Those in the highest group will converge to an “R&D steady state”, while those in the intermediate group converge to an “implementation steady state”. Countries in both of these groups will grow at the same rate in the long run, as a result of technology transfer, but inequality of per-capita income between the two groups will increase during the transition to the

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This paper argues that gender discrimination is an inefficient practice. We model gender discrimination as the complete exclusion of females from the labor market or as the exclusion of females from managerial positions. The distortions in the allocation of talent between managerial and unskilled positions, and in human capital investment, are analyzed. It is found that both types of discrimination lower economic growth; and that the former also implies a reduction in per capita GDP, while the latter distorts the allocation of talent. Both types of discrimination imply lower female-to-male schooling ratios. The type of gender discrimination explored in this paper is sustainable as long as the men’s relative preference for male bargaining power in the household relative to total household income is large enough. We present evidence based on panel-data regressions across Indian states over 1961-1991 that is consistent with the model’s predictions.

This paper generalizes the Nelson-Phelps catch-up model of technology diffusion. We allow for the possibility that the pattern of technology difusion can be exponential, which would predict that nations would exhibit positive catch-up with the leader nation, or logistic, in which a country with a sufficiently small capital stock may exhibit slower total factor productivity growth than the leader nation. We derive a nonlinear specification for total factor productivity growth that nests these two specifications. We estimate this specification for a cross-section of nations from 1960 through 1995. Our results support the logistic specification, and are robust to a number of sensitivity checks. Our model also appears to predict slow total factor productivity growth well. 22 of the 27 nations that we identify as lacking the critical human capital levels needed to achieve faster total factor productivity growth than the leader nation in 1960 did achieve lower growth over the next 35 years. J.E.L. Classification Number: O4

Technological progress, the mainspring of long-run economic growth, comes from innovations that generate new products, processes and markets. Innovations in turn are the result of deliberate research and development activities that arise in the course of market competition. These Schumpeterian observations constitute

Growth theory has often been perceived by development economists as being orthogonal to their main concern, namely, that of understanding the sources of persistent poverty and stagnation in households and villages, and of designing policies aimed at overcoming them. Growth theory, they would argue, is

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