Productivity Growth and Organizational Learning

A new specification of the sources of productivity growth is offered. Motivated by the lack of innovation and technology adoption in backward economies, a third channel of growth related to organizational structure, work ethics, and discipline in the production process (for simplicity called organizational learning) is suggested. The suggested specification generates new insights about the dominating source of growth during the development process: organizational learning in backward economies, technology adoption in middle‐income economies, and innovation in developed economies. This adds to the current understanding of development as a transition from technology adoption to innovation. Numerical simulations of the Thai catch‐up process since 1965 illustrate the importance of organizational learning. A counterfactual experiment shows how investments in secondary education contribute to the move from organizational learning to adoption of more advanced foreign technology.