Growth and structural change : trends, patterns and policy options

On of the most researched topics in recent growth theory if the issue of convergence of productivity levels (e.g., Bernard and Jones, 1996, Benhabib and Spiegel, 1994, to name only a few of the many recent contributions). Mainstream economic theory (under which I will group both the old Solowian tradition, and the new growth models) traditionally attributes convergence to 'transitional dynamics', Le., the fact that countries have not yet reached the steady state growth path that is predicted by these theories. Investment in capital goods is the main vehicle for convergence in this case, because countries with low capital-labour ratios will have high marginal returns to investment, and hence grow rapidly. In a different set of theories that are known as 'technology gap' theories (Fagerberg, 1994), convergence is caused by the international diffusion of technological knowledge.