Introduction to Modern Economic Growth differences, others show that, with reasonable models, most of the cross-country differences are due to technology While complete agreement is not possible, it is safe to say that the consensus in the literature today favors the interpretation that cross-country differences in income per capita cannot be understood solely on the basis of differences in physical and human capital; in other words there are technology differences across countries and these technology differences need to be understood Hence one important potential lesson from this data detour is that technological progress is not only important in generating economic growth in the basic Solow model, but also likely to be a major factor in cross-country differences in prosperity A detailed study of technological progress and technology adoption decisions of households and firms is therefore necessary This motivates the detailed analysis of technological progress and technology adoption later in the book It is also useful to emphasize once again that differences in TFP are not necessarily due to technology in the narrow sense If two countries have access to the same technology but make use of these techniques in different ways with different degrees of efficiency or if they are subject to different degrees of market or organizational failures, these differences will show up as TFP differences Therefore, when we talk of technology differences in the sense of this chapter, they should be construed rather broadly By implication, if we want to understand TFP differences across countries, we must study not only differences in the techniques that they use but the way they organize markets and firms and how to incentivize different agents in the economy This again shapes our agenda for the rest of the book, especially paving the way for our investigation of endogenous technological change in Part and of differences in technology and productive efficiency across countries in Parts and There is one more sense in which what we have learned in this chapter is limited What the Solow model makes us focus on, physical capital, human capital and technology, are proximate causes of economic growth in cross-country differences It is important to know which of these proximate causes are important and how they affect economic performance both to have a better understanding of the mechanics of economic growth and also to know which class of models to focus on But at some level (and exaggerating somewhat) to say that a country is poor because it has 149