Abstract

In this article, we propose an endogenous growth model with technological diffusion and rent seeking activity. We show that, the diffusion of technology from north to south countries depends on the existence of a “social capability” and in particular of a favourable institutional environment in the host countries. Moreover, we show that the gaps in product per capita between countries can‘t be resorbed due to deficient institutions in the southern economies. In fact, the prevailing culture of governance in these economies is characterized by a locked social order and a state capture by political and economic elites, such institutional environment reduces the incentive of individuals to invest and to adopt new technologies.

Furthermore, we accomplish an empirical validation of these results.We consider a panel of Mediterranean Arab Countries during the period 2000–2010 and we apply the instrumental variables method. We show that, the results are consistent with the theoretical model; a system of governance characterized by a strong collusion between economic and political elites inhibits convergence of GDP per capita between economies.Our contribution in this paper includes also the construction of a composite index that measures the degree of openness of the insider system in an economy.

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