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The Low-Skill, Low-Quality Trap: Strategic Complementarities between Human Capital and R&D

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  • Redding, Stephen

Abstract

This paper investigates the relationship between investments in human capital and R&D in a model of endogenous growth. Both forms of investment exhibit pecuniary externalities and are, as a result, strategic complements. Multiple equilibria may occur for intermediate parameter values and the present analysis may be seen as providing a theoretical rationalization for the idea that an economy may become trapped in a 'low-skills' equilibrium, characterized by a poorly trained workforce and low product quality. In the presence of multiple equilibria, there may be a welfare-improving role for government policy in coordinating expectations. Copyright 1996 by Royal Economic Society.

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  • Redding, Stephen, 1996. "The Low-Skill, Low-Quality Trap: Strategic Complementarities between Human Capital and R&D," Economic Journal, Royal Economic Society, vol. 106(435), pages 458-470, March.
    • Handle: RePEc:ecj:econjl:v:106:y:1996:i:435:p:458-70
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