🤖 AI Summary
This study addresses the challenge that standard growth models face in explaining the long-run convergence of developing economies toward the technological frontier. It proposes a novel framework in which technology diffusion is modeled as a herding adoption process driven by individual incentives and peer effects, yielding a nonlinear dynamic model with microfoundations. Embedded within a neoclassical growth setting, the model endogenously characterizes the evolution of total factor productivity. Its parameters possess clear economic interpretations and permit analytical solutions. The model successfully fits OECD productivity data from Central and Eastern European countries, accurately capturing both the trajectory and pace of their convergence. This approach offers a new perspective on the interplay between technology diffusion and economic growth.
📝 Abstract
The long-run convergence of developing economies toward advanced countries exhibits robust empirical regularities, yet the mechanisms underlying technological diffusion remain insufficiently specified in standard growth models. In this paper, we extend the neoclassical framework by introducing a micro-founded mechanism of technological transfer as a driver of total factor productivity. Rather than treating technological progress as exogenous or purely innovation-driven, we model productivity growth as a process of adopting existing technologies from the global frontier. The diffusion process is described using a herding-type interaction mechanism, in which agents transition from non-adopters to adopters under the combined influence of individual incentives and peer effects. This approach yields a tractable aggregate representation of TFP dynamics characterized by nonlinear convergence toward a moving technological frontier. We derive an explicit analytical solution and provide an interpretation of model parameters in terms of initial productivity, convergence limits, and diffusion speed. The model is evaluated using OECD productivity data for Central and Eastern European economies.