Abstract

The authors present a model of endogenous growth in which the main engine of economic development is knowledge. Using a two-sector closed economy model that comprises of a conventional goods-producing sector and a research and development sector, their model incorporates two key aspects of knowledge: technology and human capital. Steady-state equilibrium conditions show that the growth rate of per capita income hinges on the growth rate of human capital. While the growth rate of human capital has been previously shown to affect the growth of the economy in transition between steady states or balanced growth paths, the authors are the first to link the growth rate of human capital to the steady-state growth rate of productivity and output per worker. Furthermore, this result does not exhibit scale effects or policy invariance, both of which have been longstanding concerns with the predictions of endogenous growth models developed in the 1990s.

Highlights

  • Endogenous growth models, such as Romer (1990), Grossman and Helpman (1991), and Aghion and Howitt (1992), attempt to explain productivity growth by the introduction of a research and development (R&D) sector, with human capital or skilled labor as an input

  • We examine the role of information and communications technology (ICT) in economic development, by assuming an exogenous one-time increase or improvement in the economy’s ICT infrastructure

  • In light of the above, we argue that an improvement or an increase in the level of the economy’s ICT infrastructure increases the efficiency of which the existing level of technology contributes to the production of innovation and discoveries

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Summary

Introduction

Endogenous growth models, such as Romer (1990), Grossman and Helpman (1991), and Aghion and Howitt (1992), attempt to explain productivity growth by the introduction of a research and development (R&D) sector, with human capital or skilled labor as an input These models show that the steady-state growth rate of output per worker depends positively on the level of available resources for R&D in the economy, such as the stock of human capital or endowment of skilled labor. While the predictions of the latter class of models certainly do not preclude the experience of the NIEs, they imply the growth rate of per capita income is, to a large extent, invariant to government policies Policies such as tax incentives for R&D or education subsidies, which are commonly accepted to promote technical progress and long-term economic growth, will have no effect on the steady-state growth rate of per capita income.

Theoretical Model
Derivation of the Steady-State Condition for Capital Accumulation
Derivation of the Steady-State Condition for Technological Growth
Derivation of the Steady-State Solution
Effect of Growth of Human Capital on Steady-State Technological Growth
Derivation of Steady-State Output Growth
Policy Exercises
An Increase in the Growth Rate of Human Capital Accumulation
An Improvement in the ICT Infrastructure
Summary and Conclusion
Full Text
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