We develop a dynamic model with knowledge spillovers in production. The model contains two opposing forces. Imitation of other firms helps followers catch up with leaders, but the prospect of doing so makes followers want to free ride. The second force dominates and creates permanent inequality....

This paper tackles two puzzles: the high empirical elasticity of aggregte output with respect to the measured capital input and the seemingly high variability of growth rates over countries in the medium run. We find that one need not invoke increasing returns or externalities to capital to...

Why did the stock market decline so much in the early 1970s and remain low until the early 1980s? We argue that it was because information technology arrived on the scene and the stock-market incumbents of the day were not ready to implement it. Instead, new firms would bring in the new...