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The Knowledge-Diffusion Bottleneck in Economic Growth and Development

Staley, Mark (2018): The Knowledge-Diffusion Bottleneck in Economic Growth and Development.

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If learning and teaching were easy, the whole world would be developed and frontier knowledge would spread quickly. But learning is difficult and there is a finite capacity for teaching. The concept of a knowledge-diffusion ``bottleneck'' can be used to explain why there is a negative correlation between per-capita income growth rates and fertility rates, especially amongst countries that are in the early stages of industrialization. It can also explain why income distributions in rich countries have power-law tails (both upper and lower) and why income growth rates are independent of scale. A simple model of knowledge diffusion is calibrated to the observed paths of structural transformation in newly-industrializing countries. The resulting parameters are found to be consistent with the tail exponents seen in U.S. income data, suggesting a common mechanism of knowledge diffusion operating in developing countries and fully-developed countries.

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