Many Remaining Questions

The previous section provided a narrative emphasizing how technological changes trans­formed the world economy starting in the 18th century and how certain societies took the advantage of these changes while others failed to do so.

Thus what I have presented above should be taken for what it is; a suggested answer that needs to be investigated more. But this is only one of the many remaining questions. The political economy of growth is important because it enables us to ask and answer questions about the fundamental causes of economic growth. But many other aspects of the process of growth require further investigation. In some sense, the field of economic growth is one of the more mature areas in economics, and certainly within macroeconomics it is the area where there is broadest agreement on what types of models are useful for the study of economic dynamics and for empirical analysis. And yet, there is so much that we still do not know.

I will now end by mentioning a few of the areas where the potential for more theoretical and empirical research is clear.

In addition to the industrial organization of innovation, the contractual structure of in­novation needs further study. We live in a complex society, in which most firms are linked to others as suppliers or downstream customers, and most firms are connected to the rest of the economy indirectly through their relationship with the financial markets. All of these relationships are mediated by various explicit and implicit contracts. Similarly, the employ­ment relationship that underlies the productivity of most firms relies on contractual relations between employers and employees. We know that moral hazard and holdup problems occur in all these contractual relationships.

The previous section emphasized how many economies started the growth process by importing technologies and thus integrating into the global economy. Today we live in an increasingly globalized and globalizing economy. But there is still much to understand about how technology is transferred from some firms to others, and from advanced economies to less- developed ones. The models I presented in Chapter 19 emphasized the importance of human capital, barriers to technology adoption, issues of appropriate technology, and contracting problems. Nevertheless, most of the models are still at the qualitative level and we lack a framework that can make quantitative predictions about the pace of technology diffusion. We have also not yet incorporated many important notions related to technology transfer into our basic frameworks. These include ideas related to tacit knowledge, the workings of the international division of labor, the role of trade secrecy, and the system of international intellectual property rights protection.

The reader will have also noticed that the material presented in Chapter 21 is much less unified and perhaps more speculative than the rest of the book. Although some of this reflects the fact that I had to simplify a variety of models to be able to present them in a limited space, much of it is because we are far from a unified framework for understanding the process of economic development and the structural transformations that it involves. We know that economic growth is accompanied by structural change. Some of the structural change can be viewed as a simple byproduct of economic growth, such as the increase in services relative to agriculture.

Last but not least, given the narrative in the last section and the discussion in Chap­ters 4, 22 and 23, the reader will not be surprised that I think many important insights about economic growth lie in political economy. But understanding politics is in many ways harder than understanding economics, because political relations are even more multifaceted. Although I believe that the political economy and growth literatures have made important advances in this area over the past decade or so, much remains to be done. The political economy of growth is in its infancy and as we further investigate why societies make different choices, we will gain a better understanding of the process of economic growth.