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On the Effectiveness of Growth-Enhancing Policies in a Model of Growth Without Scale Effects

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  • Lutz G. Arnold

Abstract

Standard R&D growth models have two disturbing properties: the presence of scale effects (i.e., the prediction that larger economies grow faster) and the implication that there is a multitude of growth-enhancing policies. Recent models of growth without scale effects, such as Segerstrom's (1998), not only remove the counterfactual scale effect, but also imply that the growth rate does not react to any kind of economic policy. They share a different disturbing property, however: economic growth depends positively on population growth, and the economy cannot grow in the absence of population growth. The present paper integrates human capital accumulation into Segerstrom's (1998) model of growth without scale effects. Consistent with many empirical studies, growth is positively related not to population growth, but to investment in human capital. And there is one way to accelerate growth: subsidizing education. Copyright Verein fü Socialpolitik and Blackwell Publishers Ltd 2002.

Suggested Citation

  • Lutz G. Arnold, 2002. "On the Effectiveness of Growth-Enhancing Policies in a Model of Growth Without Scale Effects," German Economic Review, Verein für Socialpolitik, vol. 3(3), pages 339-346, August.
  • Handle: RePEc:bla:germec:v:3:y:2002:i:3:p:339-346
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    References listed on IDEAS

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    1. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
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    10. Arnold, Lutz G., 1998. "Growth, Welfare, and Trade in an Integrated Model of Human-Capital Accumulation and Research," Journal of Macroeconomics, Elsevier, vol. 20(1), pages 81-105, January.
    11. Theo S. Eicher & Stephen J. Turnovsky & Uwe Walz, 2000. "Optimal Policy for Financial Market Liberalizations: Decentralization and Capital Flow Reversals," German Economic Review, Verein für Socialpolitik, vol. 1(1), pages 19-42, February.
    12. Arnold, Lutz G., 2000. "Endogenous growth with physical capital, human capital and product variety: A comment," European Economic Review, Elsevier, vol. 44(8), pages 1599-1605, August.
    13. Huw Lloyd-Ellis & Joanne Roberts, 2000. "Twin Engines of Growth," Working Papers jorob-00-02, University of Toronto, Department of Economics.
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    Cited by:

    1. Simon Wiederhold, 2009. "Government Spending Composition in a Simple Model of Schumpeterian Growth," Jena Economic Research Papers 2009-101, Friedrich-Schiller-University Jena.
    2. Lutz G. Arnold, 2006. "Does the Choice between Wage Inequality and Unemployment Affect Productivity Growth?," German Economic Review, Verein für Socialpolitik, vol. 7, pages 87-112, February.
    3. Stadler, Manfred, 2015. "Innovation, industrial dynamics and economic growth," University of Tuebingen Working Papers in Economics and Finance 84, University of Tuebingen, Faculty of Economics and Social Sciences.
    4. repec:ebl:ecbull:v:15:y:2003:i:4:p:1-8 is not listed on IDEAS
    5. Stadler Manfred, 2012. "Engines of Growth: Education and Innovation," Review of Economics, De Gruyter, vol. 63(2), pages 113-124, August.
    6. Panagiotis PEGKAS & Constantinos TSAMADIAS, 2015. "Does Formal Education At All Levels Cause Economic Growth? Evidence From Greece," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 15, pages 9-32, June.
    7. Klaus Prettner, 2013. "Population aging and endogenous economic growth," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(2), pages 811-834, April.
    8. repec:got:cegedp:139 is not listed on IDEAS
    9. Thomas M. Steger, 2003. "The Segerstrom Model: Stability, Speed of Convergence and Policy Implications," Economics Bulletin, AccessEcon, vol. 15(4), pages 1-8.
    10. Stadler, Manfred, 2004. "Bildung, Innovationsdynamik und Produktivitätswachstum," Tübinger Diskussionsbeiträge 280, University of Tübingen, School of Business and Economics.
    11. Bettina Büttner, 2006. "Effectiveness versus Efficiency: Growth-Accelerating Policies in a Model of Growth without Scale Effects," German Economic Review, Verein für Socialpolitik, vol. 7, pages 297-316, August.
    12. Wolf-Heimo GRIEBEN, 2004. "Globalization, Labor Market Rigidities and Multiple Equilibria," DEGIT Conference Papers c009_020, DEGIT, Dynamics, Economic Growth, and International Trade.
    13. Klaus Prettner & Timo Trimborn, 2012. "Demographic Change and R&D-based Economic Growth: Reconciling Theory and Evidence," DEGIT Conference Papers c017_006, DEGIT, Dynamics, Economic Growth, and International Trade.
    14. Prettner, Klaus, 2012. "Public education and economic prosperity: Semi-endogenous growth revisited," ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 02/2012, Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON).
    15. Klaus Prettner, 2012. "Public education, technological change and economic prosperity: semi-endogenous growth revisited," PGDA Working Papers 9012, Program on the Global Demography of Aging.

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