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Appropriate growth policy: a unifying framework

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  • Aghion, P.
  • Howitt, P.
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    Abstract

    In 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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    File URL: http://discovery.ucl.ac.uk/17713/1/17713.pdf
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    Bibliographic Info

    Paper provided by University College London in its series Open Access publications from University College London with number http://discovery.ucl.ac.uk/17713/.

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    Date of creation: Apr 2006
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    Publication status: Published in Journal of the European Economic Association (2006-04) v.4, p.269-314
    Handle: RePEc:ner:ucllon:http://discovery.ucl.ac.uk/17713/

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    Web page: http://www.ucl.ac.uk

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    1. Howitt, Peter & Mayer-Foulkes, David & Aghion, Philippe, 2005. "The Effect of Financial Development on Convergence: Theory and Evidence," Scholarly Articles 4481509, Harvard University Department of Economics.
    2. Alan Krueger & Mikael Lindahl, 2000. "Education for Growth: Why and For Whom?," Working Papers 808, Princeton University, Department of Economics, Industrial Relations Section..
    3. Diego Comin & Sunil Mulani, 2007. "A theory of growth and volatility at the aggregate and firm level," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
    4. Howitt, Peter & Griffith, Rachel & Aghion, Philippe & Blundell, Richard & Bloom, Nick, 2005. "Competition and Innovation: An Inverted-U Relationship," Scholarly Articles 4481507, Harvard University Department of Economics.
    5. Blundell, Richard & Griffith, Rachel & Van Reenen, John, 1995. "Dynamic Count Data Models of Technological Innovation," Economic Journal, Royal Economic Society, vol. 105(429), pages 333-44, March.
    6. Daron Acemoglu & Jaume Ventura, 2001. "The World Income Distribution," NBER Working Papers 8083, National Bureau of Economic Research, Inc.
    7. Philippe Aghion & Richard Blundell & Rachel Griffith & Peter Howitt & Susanne Prantl, 2009. "The Effects of Entry on Incumbent Innovation and Productivity," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 20-32, February.
    8. Prantl, Susanne & Howitt, Peter & Griffith, Rachel & Blundell, Richard & Aghion, Philippe, 2004. "Entry and Productivity Growth: Evidence From Microlevel Panel Data," Scholarly Articles 4481510, Harvard University Department of Economics.
    9. Larry E. Jones & Rodolfo E. Manuelli & Ennio Stacchetti, 1999. "Technology (and Policy) Shocks in Models of Endogenous Growth," NBER Working Papers 7063, National Bureau of Economic Research, Inc.
    10. Tom Krebs, 2003. "Human Capital Risk And Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 118(2), pages 709-744, May.
    11. Joonkyung Ha & Peter Howitt, 2007. "Accounting for Trends in Productivity and R&D: A Schumpeterian Critique of Semi-Endogenous Growth Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(4), pages 733-774, 06.
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