A technology gap interpretation of growth paths in Asia and Latin America

Abstract

This paper presents a North-South technology gap model which combines the Schumpeterian approach to technical and structural change with the Keynesian perspective on effective demand and the Balance-of-Payments (BOP) constraint as drivers of growth. Three are the contributions of the paper. First, it develops a model in which the technology gap, relative productivity and relative wages co-evolve and may generate different paths of convergence or divergence between South and North depending on the parameters of the model. Second, the parameters of the model are associated with different types of policies, which allows for discussing how these policies may change the growth path. Finally, the model is used to discuss the contrasting experiences of Asia and Latin America since 1970. Convergence in Asia and divergence in Latin America have been extensively debated topics in the literature on comparative economic development, which highlights the crucial role of industrial policy. It is argued that the results of the technology gap model are consistent with the findings of this literature and helps understand the forces behind convergence and divergence.