The history of capitalism from the Industrial Revolution onwards is one of increasing differences in productivity and living conditions across different parts of the globe. According to one source, 250 years ago the difference in income or productivity per head betwen the richest and poorest country in the world was approximately 5:1, while today this difference has increased to 400:1 (Landes 1998). However in spite of this long-run trend towards divergence in productivity and income, there are many examples of (initially) backward countries that–at different times–have manged to narrow the gap in productivity and income between themselves and the frontier countries, in other words, to "catch up". How did they do it? What was the role of innovation and diffusion in the process? These are among the questions we are going to discuss in this chapter.
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