Leapfrogging Cycles in International Competition

Technological leadership has shifted at various times from one country to another. We propose a mechanism that endogenously explains this perpetual cycle of technological leapfrogging in a two-country model including the dynamic optimization of an infinitely-lived consumer. In the model, the stock of knowledge accumulates in each country over time because of domestic innovation and spillovers from foreign innovation. We show that if the international knowledge spillovers are reasonably efficient, technological leadership may shift first from one country to another, and then alternate between countries along an equilibrium path