Magalhaes, M. & O. Afonso
Research Policy – Forthcoming

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Abstract: This paper adds the production network into a multi-sector endogenous growth model to analyze the respective effects on technology adoption and thus on economic growth. In particular, we show that the higher the network degree, the higher is TFP and the stronger is the impact on extensive and intensive margins; hence, more likely is technology adoption and economic growth. Therefore, distinct cross-country network structures explain inter- country income differences. We then estimate the model and confirm theoretical findings: e.g., the network degree and technology invention year can together explain 81% of the technology adoption lag variation (extensive margin), the network degree can explain 9% of the intensive margin variation, and the inverse-network degree and the relative intensive and extensive margins together account for approximately 31% of the inter-country income differences.