Barriers and the Transition to Modern Growth

My dissertation consists of two essays aimed at examining how cross-country differences in policies that act as barriers to capital accumulation and technology adoption, can account for the large and persistent cross-country differences in income per capita. My first chapter shows that barriers affect both the beginning date and the pace of the modern economic growth. A fundamental property of the model is that cross-country income differences exhibit an inverted U-shape over time. A key implication of my model is that a substantial fraction of existing income differences is really a transitional phenomenon. This is in contrast to many papers that try to model it as representing steady state differences. It follows that relative to these models, my model requires a smaller size of barriers to account for current income disparities. Another important finding is that the transitional effect increases significantly when I include the fact that today\u27s low-income countries have had higher population growth rates during the early development stage than did the currently rich countries. In a quantitative exercise, I find that given the beginning dates of modern growth, the model accounts for a significant portion of current income differences. My second chapter studies how the size of barriers to technology adoption is determined. I argue that barriers to technology adoption are generated by the lobbying activities of an insider and its potential competitor. The insider is a coalition of input suppliers operating the existing technology. It can deter entry of a better technology by increasing its membership size as a threat to flood the market if entry occurs, or by lobbying for protection from the state. The lobbying activities are inefficient as economic resources are taken from productive to unproductive use. I find two main results. First, the size of barriers as measured by the lobbying cost to the potential entrant, increases in the level of the new technology but equal to zero when this level is sufficiently high. Second, the size of barriers increases in the relative efficiency of the coalition\u27s lobbying effort. Thus implies that larger barriers are associated with lobbying technology that favors insiders