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Growth models of learning-by-doing assume that the knowledge learned in production gets freely and instantly spread to the whole economy. However, the assumption of instant diffusion of knowledge is unrealistic. Diffusion of knowledge takes time and requires some channel of transmission. In this paper, the authors relax this assumption. They present a model where the free and instant diffusion of knowledge may exist only within sectors, but not across sectors. In contrast, diffusion of knowledge across sectors can only occur through the mobility of labor. They investigate the equilibrium outcome of such economy considering two scenarios: full learning-by-doing and partial learning-by-doing. In the first scenario, the production function is an AK function and, obviously, the equilibrium does not exhibit transition.
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