Human Capital, R&D and Economic Growth

People go to school and firms do R&D. These activities result in human capital accumulation and new ideas and technologies which make economies grow. We try to capture the interaction between human capital and R&D by allowing for endogenous human capital accumulation in an economy where the number of products and technologies expands because profit maximizing entrepreneurs do R&D. We find that, in the absence of scale effects, long run growth is determined by the capacity to accumulate human capital. A relative lack of R&D capital causes the economy to grow slowly during its transition to the steady state, while a relative abundance of R&D capital gives high growth rates during transition.