Working Paper nr 24: Innovation and catching-up

Abstract

The history of capitalism from the industrial revolution onwards is one of increasing differences in productivity and living conditions across different parts of the globe. According to historian David Landes, for instance, 250 years ago the difference in income per head between the richest and poorest country in the world was approximately 5:1, today this difference has increased to 400:1. However, in spite of this long run trends towards divergence in productivity and income, there are many examples of (initially) backward countries that – at different times – have managed to defy the trend by narrowing the gap in productivity and income between themselves and the frontier countries, that is, by “catching up”. How did they do it? What was the role of policy in the process? These are among the questions that we are going to discuss in this paper.