Contents

Abstract 68

Keywords 68

1. Introduction 69

2. Basic framework 69

2.1. AtoyversionoftheAghion-Howittmodel 69

2.2. Ageneralization 71

2.3. Alternativeformulations 75

2.4.

3. Linking growth to development: convergence clubs 76

3.1. A model of technology transfer 78

3.2. World growth and distribution 81

3.3. Theroleoffinancialdevelopmentinconvergence 81

3.4. Concluding remark 84

4. Linking growth to IO: innovate to escape competition 84

4.1. The theory 86

4.2. Empirical predictions 89

4.3. Empirical evidence and relationship to literature 89

4.4. A remark on inequality and growth 92

5. Scale effects 92

5.1. Theory 92

5.1.1. The Schumpeterian (fully endogenous) solution 93

5.1.2. The semi-endogenous solution 93

5.2. Evidence 94

5.2.1. Results 95

5.3. Concluding remarks 97

Handbook of Economic Growth, Volume LA. Edited by Philippe Aghion and StevenN. Durlauf

© 2005 Elsevier B.V. All rights reserved

DOI: 10.1016∕S1574-0684(05)01002-6

6. Linking growth to institutional change 98

6.1. FromschumpetertoGerschenkron 98

6.2. Asimplemodelofappropriateinstitutions 100

6.3. Appropriateeducationsystems 101

6.3.1. Distance to frontier and the growth impact of higher education 102

6.3.2. Empirical evidence 105

7. Conclusion 106

References 107