What determines the relative growth performance of different economies? Economists have long held that the immediate answer to this question lies mostly in factor accumulation. Traditional neo-classical models emphasized the role of investment in physical capital. More recently, the literature on endogenous growth marks a shift to a broader concept of capital which includes human and technological capital as well.

In Discussion Paper No. 1274, Research Affiliate Angel de la Fuente analyses the sources of post-war growth and convergence in the OECD using an extension of Mankiw, Romer and Weil's (1992) model in which the rate of technical progress is determined endogenously by the level of R&D spending and a process of technological catch-up. The results indicate that the impact of R&D investment on growth has been significant. Technological catch-up is found to be very fast and seems to have played an important role in OECD convergence during the first half of the sample period. The exhaustion of this effect, moreover, may help explain the slowdown of growth and convergence after the mid-1970s, and suggests that further convergence will require an important investment effort on the part of poorer countries. Lastly, there is evidence that the neo-classical convergence effect is also operative but its contribution to convergence in output per worker has been minor.