| Abstract: |
Empirical evidence suggests that there has been a divergence over time in
income distributions across countries and within countries. Furthermore,
developing economies show a great deal of diversity in their growth patterns
during the process of economic development. For example, some of these
countries converge rapidly on the leaders, while others stagnate, or even
experience reversals and declines in their growth processes. In this paper we
study a simple dynamic general equilibrium model with household specific costs
of technology adoption which is consistent with these stylized facts. In our
model, growth is endogenous, and there are two-period lived overlapping
generations of agents, assumed to be heterogeneous in their initial holdings
of wealth and capital. We find that in a special case of our model, with costs
associated with the adoption of more productive technologies fixed across
households, inequalities in wealth and income may increase over time, tending
to delay the convergence in international income differences. The model is
also capable of explaining some of the observed diversity in the growth
pattern of transitional economies. According to the model, this diversity may
be the result of variability in adoption costs over time, or the relative
position of a transitional economy in the world income distribution. In the
more general case of the model with household specific adoption costs,
negative growth rates during the transitional process are also possible. The
model’s prediction that inequality has negative impact on technology adoption
is supported by empirical evidence based on a cross country data set. |