Institutional Differences As Sources of Growth Differences‪.‬

Introduction Dissatisfaction with the neoclassical growth theory and its inconsistency with the empirical evidence led to the emergence of alternative growth models in the 1980s [Romer, 1986; 1989; 1990; Lucas, 1988; Becker et al., 1990; and Buchanan and Yoon, 1995]. These models seek to explain the economic process by parameters specified within the model. That is, growth is endogenously determined within the economic system. Unlike the neoclassical assumption of exogenously determined technology, these models posit that technological progress is the result of the intentional investment of profit-seeking private firms in research and development. They attribute differences in economic growth across countries to differences in resources devoted to research and development [Grossman and Helpman, 1989a; 1991a], differences in the initial stocks of human capital [Lucas, 1988; Becket et al., 1990], and differences in the stocks of human capital devoted to research [Romer, 1986; 1990].