Technological change and path dependence: a co-evolutionary model on a directed graph

In this paper, I model technological change as an evolutionary process of generation and selection of economic activities in a highly path-dependent fashion. There are two key features of our approach. The first is that economic activities are conceived as points of a directed graph and endowed with a corresponding notion of technological distance which determines both the probability of invention of any new activity and the cost of learning it. The second feature is that agents are assumed rational and taken to choose optimally from among the available activities, given the status quo and the associated learning costs. In such a context, we focus on two economies that start off technologically close and evolve side by side with some extent of technological diffusion across them. It is shown that alternative assumptions on the speed of diffusion may have drastically different implications for the evolution of the process. I then argue that this theoretical analysis helps provide some insight on existing empirical evidence; in particular, on the conditions under which relative stagnation or technological catch-up may arise and become consolidated among different economies.