Catching-Up

Abstract

The search for a pattern in the observed wide variation in the cross-country growth rate of output per man hour has led to the observation that the latecomers in industrialization should, and in fact do, tend to innovate faster than does the world’s ‘technology frontier area’ (TFA), the latter defined as the regions in which the world’s best technology is employed. The reason behind this observation is the commonsense notion that in technology or organization, as well as in science, learning and imitating is typically cheaper and faster than is the original discovery and testing. The distance between the level of development of the TFA and that of a less developed country (LDC) may be taken as a measure of the backlog of technological opportunities to exploit. The larger the greater may be expected to be the economic incentive to take advantage of some of these opportunities and, other things being equal, the greater the rate of international technology transfer. The idea that there might be ‘advantages of backwardness’ in this sense is usually associated with the names of Thorstein Veblen and Alexander Gerschenkron. Veblen (1915) applied it to Germany vis-à-vis England; Gerschenkron (1962) updated it and extended the work to include Russia, France and Italy. A formalization of this idea by Nelson and Phelps (1966) assumed that an increase in the level of technology of an LDC is proportional to the technology gap between it and the TFA. This assumption implies that the relationship between the rate of innovation and the relative technology gap is, for any LDC and in the course of time, positive and linear. Moreover, the LDCs’ innovation rate would always exceed that of the TFA but fall toward it asymptotically, the relative gap falling as a result toward a country-specific positive constant, called the ‘equilibrium technology gap’. This falling of the relative technology gap between an LDC and the TFA is what is meant by (international and/or technological) catching-up.