Innovation, Public Capital, and Growth
This paper studies interactions between innovation, public capital, and human capital in an OLG model of endogenous growth. Public capital affects growth through productivity, the diffusion rate of new technologies, innovation capacity, and human capital accumulation. Panel data regressions show that higher innovation performance promotes growth directly, whereas public capital (through quantity and quality effects) has both direct and indirect effects on growth by promoting human capital accumulation and raising innovation capacity. The direct growth effect operates in a nonlinear fashion, in line with "critical mass" models of infrastructure. Elasticity estimates derived from simultaneous equation techniques show that the general equilibrium effects of public capital on steady-state output per capita (which account for indirect effects though human capital and innovation) are significantly higher than those derived from single equation methods.
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