ECONOMIC GROWTH AND TRANSITION: A STOCHASTIC TECHNOLOGICAL DIFFUSION MODEL

This paper constructs a stochastic growth model that anchors on technology diffusion and improvement in social infrastructure to explain the growth of developing countries. The model is based on the technological diffusion model by Barro and Sala-i-Martin (1997) with two significant extensions: the (productivity) parameter in the model which represents social infrastructure is being endogenized and probability of adverse shocks is being incorporated. The stochastic technological diffusion model is able to explain the various economic growth and transition phases of developing economies. Technology diffusion is modeled as the determinant of conditional convergence, while technological progress and economic openness further strengthen the social infrastructure bringing about absolute convergence. The model is also able to explain why some developing economies experience economic take-off while others do not.