Knowledge gaps, convergence, and growth

Abstract This article presents a growth model with international knowledge spillovers arising from learning-by-investing externalities, explaining patterns of income convergence and growth. Technology adoption in follower economies depends on relative capital intensity, with spillovers enhancing productivity only when capital gaps with frontier economies are moderate. Using global data, we show that capital intensity largely determines growth, consistent with the model’s predictions. Income growth differentials relative to the US arise only below a threshold of capital disparity, independent of human capital or innovation. These findings highlight the critical role of embodied learning and technology absorption in driving growth for lagging economies.