Abstract

Since the financial crisis in 2008, slow growth has riddled Europe and the Covid-19 pandemic is amplifying the challenge. Promoting economic growth and transforming to a more knowledge-based industrial structure will be high on the agenda for the coming decades. We study how more and better human capital can contribute to knowledge accumulation and structural change by means of a dynamic endogenous growth model, with Norway as a numerical case. Human capital has two main roles in productivity growth: to increase the innovative capacity by participating in research and development (R&D), and to increase the absorptive capacity in sectors that trade and can learn from abroad. We find that in a small, open economy sectors where human capital, R&D and trade interact, and enable absorption, tend to grow fastest.

Highlights

  • European economies, like most other OECD economies, have experienced a slow-down in productivity growth over the last two decades

  • This paper studies the role of human capital, i.e. highly educated labour, in transforming the economy through knowledge accumulation, productivity growth and structural change

  • Dynamic endogenous growth model for a small, open economy, Norway, where human capital contributes to growth via two main channels: enhancing innovative capacity as well as absorptive capacity

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Summary

Introduction

Like most other OECD economies, have experienced a slow-down in productivity growth over the last two decades. A numerically calibrated, more detailed model than is usually seen in the literature indicates that for the small, open economy case, increased access to human capital not least benefits the industries that grow through the absorption channel. This analysis of how human capital impacts the industrial structure can be instructive for Norway’s growth prospects for the coming decades. Industries with a large absorption potential owing to high intensities of trade and R&D-based capital experience the strongest productivity growth and attract a larger share of the economic resources, including human capital, in the transitional phase. Economy-wide welfare improves because of the positive productivity externalities involved in the growth processes

An endogenous growth model with innovation and absorption
Productivity growth through domestic innovation
Productivity growth in firms through absorption of international knowledge
Analysis
Numerical results
Concluding remarks
Variables
Findings
Estimates and calibration
Full Text
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