Knowledge Spillovers and Productivity Differences

A large part of cross-country variation in per capita income is left unexplained by differences in physical and human capital, so that the hy-pothesis of a common world technology should be rejected and a theory of productivity differences is needed. We study two possible structures of cross-country knowledge spillovers that have the potential to account for observed productivity differences: appropriate technology knowledge spillovers and backward knowledge spillovers, in which countries face a barrier in extracting technical knowledge due to their factor intensity rel-ative to the technological leader. We find that both spillovers structures can explain over an half of observed cross-country productivity differences, but the backward spillovers one is more consistent with the observed world income distribution.