Preliminary Draft

This paper studies the interaction between technology, which ßows in from abroad, and human capital, which is accumulated domestically, as the twin engines of growth in a developing economy. Technology inßows are modeled as a pure external effect, with the rate of inßow governed by a policy parameter, a barrier, and by the average level of local human capital. Human capital, a private input, is accumulated using time and the local technology as inputs. The model produces two distinct types of long run behavior, depending on the policies in place. If the technology barrier is low and the subsidy to education is high, the economy displays sustained growth, keeping pace with the technology frontier. If the technology barrier is high and/or the subsidy to education is low, the economy stagnates in the long run, converging to a minimal technology level that is independent of the world frontier. Transition paths are computed for economies that reduce their barriers to technology adoption and/or change their subsidies to education