Growth Patterns and Inequality in the Presence of Costly Technology Adoption

Abstract

The stylized facts that motivate this article include the diversity in growth patterns that are observed across countries during the process of economic development and the divergence over time in income distributions both within and across countries. We construct a dynamic general equilibrium model in which technology adoption is costly and agents are heterogeneous in their initial holdings of resources. We interpret the adoption cost as the resources expended in acquiring skills associated with new technologies. Endogenous growth occurs in our model largely as a result of human capital deepening. The analytical results of the model characterize three growth outcomes associated with the technology adoption process depending on productivity differences between the technologies. These outcomes are labeled 'poverty trap,' 'dual economy,' and 'balanced growth.' The model is then capable of explaining the observed diversity in growth patterns in addition to the divergence of incomes over time and across countries.