TY - JOUR AU - Acemoglu,Daron AU - Aghion,Philippe AU - Zilibotti,Fabrizio TI - Distance to Frontier, Selection, and Economic Growth JF - National Bureau of Economic Research Working Paper Series VL - No. 9066 PY - 2002 Y2 - July 2002 UR - http://www.nber.org/papers/w9066 L1 - http://www.nber.org/papers/w9066.pdf N1 - Author contact info: Daron Acemoglu Department of Economics MIT, E52-380B 50 Memorial Drive Cambridge, MA 02142-1347 Tel: 617/253-1927 Fax: 617/253-1330 E-Mail: daron@mit.edu Philippe Aghion Department of Economics Harvard University 1805 Cambridge St Cambridge, MA 02138 Tel: 617/495-6675 Fax: 617/495-4341 E-Mail: paghion@fas.harvard.edu Fabrizio Zilibotti Department of Economics University of Zurich Mühlebachstrasse 86 CH-8008 Zürich Switzerland Tel: +41 44 6345188 E-Mail: fabrizio.zilibotti@econ.uzh.ch AB - 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. ER -