The 'appropriate technology' explanation of productivity growth differentials: an empirical approach

This paper aims at giving empirical content to the recent Basu & Weil (1998) theory of growth, in which localized innovation and differences in speeds of capital intensification can yield several patterns of international convergence and divergence. Using data envelopment analysis techniques, a decomposition is presented in which labor productivity growth is decomposed into growth due to localized innovation, creating spillover potential through investment and assimilation of knowledge spillovers. Regression analysis shows that convergence in the 1970s and divergence in the 1980s were mainly driven by processes of creating spillover potential, but that the other two factors also had significant impacts.