Technological Diffusion, Conditional Convergence, and Economic Growth

Technological diffusion implies a form of 'conditional convergence' as lagging countries catch up with technological leaders. We find strong evidence of technological diffusion but not full convergence; differences in total factor productivity (TFP) persist even in the long run due to differences in geography and institutions. TFP differentials explain a large part of cross-country income differences in our model; our estimates of the rate of return to capital, labor and schooling are completely consistent with micro-economic studies, implying the absence of externalities in aggregate production.