Non-Scale Endogenous Growth with R&D and Human Capital

This paper examines the conditions under which increasing knowledge, encapsulated in ideas for new technology through R&D and embodied in human capital through education, sustains economic growth. We develop a general model where, consistent with recent literature, growth is non-scale (not increasing in population size) and endogenous (generated by factors within R&D and education). Recent models feature the counterfactual assumption of constant returns to existing knowledge and restrict the substitutability of inputs within R&D and education. We find that non-scale endogenous growth is possible under less stringent conditions. Our findings reconcile sustained economic growth with evidence of diminishing marginal returns in education and R&D, which suggests an ambiguous role for R&D policy.