Knowledge Gaps, Convergence and Growth

This paper develops a growth framework with international knowledge spillovers driven by learning-by-investing externalities that is able to replicate most stylized facts on income convergence and economic growth. The model predicts that knowledge spillovers from the frontier enhance the relative levels of productivity and income of the laggards, but materialise only if the gap in capital intensity between the frontier and lagging economies is not too wide. We bring the model to the data and, for a global sample of countries, observe that relative capital does mostly shape their growth pattern, in line with the predictions of our theory. We also document that differentials in income growth are driven by the gaps in capital intensity with respect to the frontier economy (the United States) only below an identified threshold. This effect is independent of knowledge inputs such as human capital and innovation. Our findings suggest that the absorption of knowledge through learning processes and embodied technological change remains a crucial driver of income growth for a significant number of lagging economies worldwide.