Equipment investment and growth in developing countries

Differences in equipment investment or equipment prices account for large v ariations in growth rates across countries. An important task is to underst and the economic mechanism underlying the equipment-growth nexus and its po licy implications. In order to study this issue, this paper develops a mode l in which growth is driven by the adoption of technologies that are embodi ed in equipment. I show that this model can quantitatively account for the observed cross-country relationships between equipment investment, equipmen t prices, and growth. I find that the competitive equilibrium is characteri zed by inefficiently low levels of learning and too slow growth and study w hich policies are able to remedy this inefficiency. (C) 2000 Elsevier Scien ce B.V, All rights reserved. JEL classification: F43; O41.