9
Introduction

There is a long tradition of expecting long-term convergence of per capita incomes in different countries. This forecast can be based on two different theories, both of which predict that incomes and productivity ought to grow faster in relatively poorer countries. According to the first theory, it is much easier for relatively poorer countries to imitate and adopt modern technology from more highly developed countries than it is for the technologically most advanced countries, through innovations, to improve their technology further. This theory is generally called the catching-up hypothesis. The same prediction follows from the neoclassical growth model introduced by Solow ( 1956) and further refined by Cass ( 1965) and Koopmans ( 1965). In this case, the rate of return on investment is assumed to decline with increasing capital intensity (capital stock per employed). Since the capital intensity is higher in richer countries, the return on investment, according to the theory, is higher in relatively poorer countries. The capital stock, and thereby production and labour productivity, tend therefore to grow faster there, producing a trend towards income convergence over time.

Although the predictions of the two theories are identical, the theoretical points of departure are very different. In neoclassical growth theory it is assumed that all countries have access to the same technology, whereas the catching-up hypothesis assumes that countries are at different technological levels and that diffusion of technology from leaders to followers is the main driving force towards convergence. The work presented in this paper follows the latter tradition.

The main purpose of this study is to make a thorough empirical appraisal of the catching-up hypothesis. The catching-up view is also contrasted to neoclassical and endogenous growth theory,

____________________
Magnus Henrekson gratefully acknowledges financial support from Jan Wallanders och Tom Hedelius' stiftelse för Samhällsvetenskaplig forskning.

-63-

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