An Alternative Model of Growth: Technology Adoption and Efficiency

A modified Solow growth model is introduced. The dynamic model considers the possibility of technology adoption and potential inefficiency caused by institutional rigidities. Countries are assumed to catch-up to the technological leader, but the potential to catch up may be compromised by their level of inefficiency. The inclusion of technology adoption, with and without institutional rigidities, slightly modifies the standard results for nations' steady states and rates of convergence (catch-up), and allows for different convergence paths. The model is estimated using both within estimation and Generalized Method of Moments technique on panel data. The data span 94 countries from 1960 to 1985 (Summers and Heston, PWT 5.6). The results show high rates of catch-up, which differ across groups of countries. It is argued that the estimated country inefficiency levels are consistent with common beliefs. The results are compared to a previous empirical growth study.