Technological Progress Under Learning by Imitation*

I analyze technological progress when knowledge has a large tacit component so that transmission of knowledge takes place through direct personal imitation. It is shown that the rate of technological progress depends on the number of innovators in the same knowledge network. Assuming the diffusion of knowledge to mirror the geographical pattern of trade—the greater the trade between two sites, the greater the probability that technical knowledge flows between them—I show that a gradual expansion of trade causes a sudden rise in the rate of technological progress.