Engines of growth: Domestic and foreign sources of innovation

We examine productivity growth since World War II in the five leading research economies: West Germany, France, the United Kingdom, Japan, and the United States. Data on the capital-output ratio suggest that these countries grew as they did because of their ability to adopt more productive technologies, not because of capital-deepening per se. We use a multicountry model of technological innovation and diffusion which nests the cases of endogenous and exogenous growth to simulate the growth of the five countries, given initial productivity levels in 1950 and research efforts in the subsequent four decades. Based on plausible assumptions about 'technology gaps' that existed among these countries in 1950 the exogenous growth version of the model explains their growth experiences more successfully. Specifically, the simulations capture the magnitude of the slowdown in German, French, and Japanese productivity growth and the relative constancy of U.K. and U.S. growth.