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Abstract

This paper analyzes the link between natural resources abundance, the quality of learning institutions and retardation in technology adoption. We offer a model in which human capital is technology specific and that learning to master the technology is costly. Market failure in the human capital market causes an underinvestment in human capital that leads to our most important result that small differences in natural resources endowments can bring about delays in technology adoption and persistent income per capita differences. We analyze the dynamics of convergence by follower countries and show it exhibits very fast growth initially and thereafter convergence to the growth rate of the leader. We show that differences in the quality of learning institutions may account for persistent differences in the level of income per capita, and may be an important source of leapfrogging. We include endogenous population growth and show that technology adoption is consistent with a demographic transition. Our results are consistent with the historical record and show that resource rich countries were overtaken by poor resource countries – reversal of fortune. Unlike current emphasis on legal systems, constitutions and property rights, we highlight the importance of efficient and high quality school system and openness to foreign technologies and knowledge as factors that shorten the adoption delay. This enables us to account for the rapid growth exhibited by countries that lack common institutional features of the Anglo-Saxon tradition. We suggest a straight forward policy recommendation that calls on governments to allow free flow of knowledge and to invest in good school and training systems.

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