Flying or trapped?

Abstract

Abstract We develop a unified theory with endogenous technology choice in human/knowledge capital accumulation to obtain a rich array of development paradigms. The transition from a less productive technology to a more productive one occurs via endogenous technology choice without requiring any force of big push. However, technologies that are more productive face higher scale barriers and thus multiple steady states may appear with each of which being associated with a different technology. We characterize global dynamics and establish conditions under which middle-income trap or flying geese growth may arise in equilibrium. By calibrating the general model to the data from several representative economies at different development stages with different growth patterns, we identify various prolonged flying geese episodes and middle-income traps. The analysis shows that while improving the efficacy of human capital accumulation is more crucial for advanced and fast-growing economies, mitigating barriers to human capital accumulation is more rewarding for emerging growing economies and development laggards. Our growth accounting results indicate that once the efficacy of and the barriers to human capital accumulation are incorporated, the residual TFP component no longer plays a substantial quantitative role.