Sources of U.S. Economic Growth in a World of Ideas

September 24, 1999 -- Version 4.0 At least since 1950, the U.S. economy has benefited from increases in educational attainment, increases in research intensity, and the increased openness and development of the world economy. Such changes suggest, contrary to the conventional view, that the U.S. economy is far from its steady-state balanced growth path. This paper develops a model in which these facts are reconciled with the stability of average U.S. growth rates over the last century. In the model, long-run growth is driven by the worldwide discovery of new ideas, which in turn is tied to world population growth. Nevertheless, a constant growth path can temporarily be maintained at a rate greater than the long-run rate provided research intensity and educational attainment rise steadily over time. Growth accounting with this model reveals that 35 percent of U.S. growth between 1965 and 1990 is attributable to the rise in educational attainment, more than 40 percent is attributable to the rise in worldwide research intensity, and only about 25 percent is due to the long-run component of growth related to the increase in world population. This is a substantially revised version of a previous paper, "The Upcoming Slowdown in U.S. Economic Growth."