Distance to frontier: From imitation to innovation

Abstract

This paper empirically assesses the role of imitation and innovation in driving economic growth across countries at different stages of development. The literature suggests that countries farther from the technological frontier benefit from the advantages of backwardness, whereas economies closer to the frontier experience growth increasingly driven by “innovation-based” rather than “imitation-based” economic policies. A novel measurement of “distance to the frontier” is proposed, using an economic complexity index at the country level, which offers advantages over the “total factor productivity” metric commonly used in the literature. The endogeneity of economic growth is addressed using a dynamic panel data estimator applied to data from 95 countries spanning 1995 to 2019. The empirical findings validate the existence of two distinct threshold levels: one where the contribution of imitation to growth falls below that of innovation, and another where imitation begins to hinder growth. Evidence also suggests that several developing countries may be nearing the threshold associated with the middle-income trap. Finally, the research highlights that the role of institutional governance in technological adaptation is stage-dependent.