A prospering modern sector is crucial for the successful long-term development in developing countries as it provides income and job growth for large shares of society. While this idea is widely accepted, there is, perhaps surprisingly, far less analysis about the exact determinants of this...

The authors present a model of regional catching-up and development without scale effects. Regional growth is driven by technological imitation which is determined by positive externalities from international trade, the regions' geography, and regional institutions. For the two regions...