Figure 16.1 shows how a country’s production possibility frontier shifts out with technology. Another characteristic of a country that you might want to think about is how far an individual country is from the technological frontier of the rest of the world and how distance from that frontier might influence growth strategies pursued by a country.

Figure 16.1

One of the puzzles in the growth area has been the fact that government strategies for growth seem to succeed in one place and then fail dismally in another. Work by Acemoglu, Aghion, and Zilibotti suggests that one key to successful government policies is how far a country is from the world frontier.1 Suppose a country is behind relative to the world at large. A government’s job here is helping its industries to catch up.

What policies work for this? Acemoglu et al. suggest that industrial policy like that used by Japan and South Korea may be helpful for this case. Here the government knows what the right technology is and just has to help its firms find the world frontier. As firms develop, however, and approach the world technological frontier, things change. Now growth comes through innovation, by finding out new ways to do things that are the best in the world. How does the government help in this task? Here, markets with sharp incentives and some encouragement of risk taking likely will be more useful. For this, policies to support entrepreneurship and improve the workings of venture capital will likely work better. Acemoglu and his colleagues argue that governments often shift too late from policies supporting adoption of other countries’ ideas to support of their own innovative efforts.

Questions

In recent years China has begun to strengthen its laws on patents. How does this fit in with the research described here?

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