@techreport{NBERw9066,
 title = "Distance to Frontier, Selection, and Economic Growth",
 author = "Daron Acemoglu and Philippe Aghion and Fabrizio Zilibotti",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "9066",
 year = "2002",
 month = "July",
 URL = "http://www.nber.org/papers/w9066",
 abstract = {We analyze an economy where managers engage both in the adaptation of technologies from the world frontier and in innovation activities.  The selection of high-skill managers is more important for innovation activities.  As the economy approaches the technology frontier, selection becomes more important.  As a result, countires at early stages of development pursue an investment-based strategy, with long term relationships, high average size and age of firms, large average investments, but little selection.  Closer to the world technology frontier, there is a switch to innovation-based strategy with short-term relationships, younger firms, less investment and better selection of managers.  We show that relatively backward economies may switch out of the investment-based strategy too soon, so certain economic institutions and policies, such as limits on product market competition or investment subsidies, that encourage the investment-based strategy may be beneficial.  However, societies that cannot switch out of the investment-based strategy fail to converge to the world technology frontier.  Non-convergence traps are more likely when policies and institutions are endogenized, enabling beneficiaries of existing policies to bribe politicians to maintain these policies.},
}