Efficient equilibrium convergence: Heterogeneity and growth
Abstract An endogenous growth model arising from task specialization is used to examine the effects of differing initial human capital distributions. Two macroeconomic phenomena are produced: income convergence and leapfrogging of living standards. Income convergence occurs for all countries in the same market, arising from diminishing returns to individual human capital. Leapfrogging occurs by comparing countries in two separate markets. Income leapfrogging can occur because the stationary growth rate increases with market size, and human capital heterogeneity reduces growth. The introduction of coordination costs of task assignment can produce gains in welfare and growth from human capital heterogeneity.