ABSTRACT
This chapter seeks to formalize the ideas of “local technological spillovers”, “technological trajectory”, and “path-dependent aggregate growth”, and to show how path-dependence can account for convergence or divergence among multiple countries in the process of economic growth and development. It shows that the economy industrializes in two stages. In the first stage, the economy starts industrialization through factor accumulation, and after sufficient factor accumulation, it switches to the second stage of endogenous growth through innovation. The chapter presents a basic model of two-stage economic growth and considers the policy implications of this model. The idea of the advantage of economic backwardness reflects the fact that latecomers tend to grow faster than the leading countries due to international technology transfer and spillovers, but when the former approaches the technological frontier, they tend to face economic slowdown. International technology transfer provides the economic advantage of backwardness by utilizing the latest technologies developed in the advanced countries.
