Ideas for Growth?

There is much talk of the knowledge economy, and the central role of ideas and knowledge in generating economic growth. This paper provides a brief review of the economic literature on how skills/ knowledge/ ideas might contribute to higher output or higher rates of growth. Ideas are complementary inputs into production, in the sense that they raise the productivity of other inputs. Some of the complementarities may give rise to externalities—effects that do not have to be paid for. For investments in ideas to generate output growth, these complementarities must be particularly strong. I conclude with some comments on what policy makers can draw from the literature, which is some encouragement but little specific guidance.