Appropriate Growth Policy: A Unifying Framework
AbstractIn this lecture, we use Schumpeterian growth theory, where growth comes from quality-improving innovations, to elaborate a theory of growth policy and to explain the growth gap between Europe and the US. Our theoretical apparatus systematizes the case-by-case approach to growth policy design. The emphasis is on three policy areas that are potentially relevant for growth in Europe, namely: competition and entry, education, and macropolicy. We argue that higher entry and exit (higher firm turnover) and increased emphasis on higher education are more growth-enhancing in countries that are closer to the technological frontier. We also argue that countercyclical budgetary policies are more growth-enhancing in countries with lower financial development. The analysis thus points to important interaction effects between policies and state variables, such as distance to frontier or financial development, in growth regressions. Finally, we argue that the other endogenous growth models, namely the AK and product variety models, fail to account for the evidence on the relationship between competition, education, volatility, and growth, and consequently cannot deliver relevant policy prescriptions in the three areas we consider.
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Bibliographic InfoPaper provided by Harvard University Department of Economics in its series Scholarly Articles with number 4554121.
Date of creation: 2006
Date of revision:
Publication status: Published in Journal of the European Economic Association
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- repec:ner:ucllon:http://discovery.ucl.ac.uk/17711/ is not listed on IDEAS
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