The Appropriate Technology Frontier - Lessons for the Developing World

Abstract

This paper presents a model of a developing economy that endogenizes both technological biases and demographic trends. As knowledge diffuses from foreign R&D-producing regions, potential innovators decide which technologies to develop after considering available factors of production, and individuals decide the quality and quantity of their children after considering available technologies. This interaction creates multiple growth paths- some economies develop labor-intensive techniques and expand the pool of unskilled labor; others grow into societies of highly skilled individuals and expanding outputs per capita. I find that if developing countries wish to achieve good prospects for income convergence, they should promote the flow of knowledge from the most developed regions, even if this results initially in a technology-skill mismatch. Such knowledge flows are more likely to promote the twin growths in human capital and technologies characteristic of the biggest economic success stories.