Catching up and slowing down: Learning and growth patterns in an open economy

This paper develops a model of an open economy in which the stock of human capital may be augmented by either imitation or innovation. Productivity in imitation depends on the difference between the body of world knowledge and an individual's stock of human capital (the knowledge gap), while productivity in innovation depends on past behavior through learning-by-doing. The model predicts convergence of growth rates, hut no, (necessarily) of per capita income levels, in the steady state. An improvement in either investment technology in either country raises growth and income levels in both countries. A technological improvement that raises productivity in imitation (innovation) in one country benefits it relatively more (less;than the rest cf the world. The dynamic path followed by a small country that moves from autarky to integration with the rest of the world Is characterized by an initial period of rapid imitation - for which there exists a large catch-up opportunity - followed. by it shift towards innovation as the knowledge gap is reduced and the economy's technical maturity rises. growing world economy, late developers experience higher growth rates than developers upon opening up.