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

  • Lutz G. Arnold

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.

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Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 3 (2002)
Issue (Month): 3 (08)
Pages: 339-346

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Handle: RePEc:bla:germec:v:3:y:2002:i:3:p:339-346
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  1. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  2. 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.
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