Externalities and Growth

66 Pages Posted: 28 Dec 2004 Last revised: 6 Jul 2012

See all articles by Peter J. Klenow

Peter J. Klenow

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Andrés Rodríguez-Clare

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: December 2004

Abstract

Externalities play a central role in most theories of economic growth. We argue that international externalities, in particular, are essential for explaining a number of empirical regularities about growth and development. Foremost among these is that many countries appear to share a common long run growth rate despite persistently different rates of investment in physical capital, human capital, and research. With this motivation, we construct a hybrid of some prominent growth models that have international knowledge externalities. When calibrated, the hybrid model does a surprisingly good job of generating realistic dispersion of income levels with modest barriers to technology adoption. Human capital and physical capital contribute to income differences both directly (as usual), and indirectly by boosting resources devoted to technology adoption. The model implies that most of income above subsistence is made possible by international diffusion of knowledge.

Suggested Citation

Klenow, Peter J. and Rodríguez-Clare, Andrés, Externalities and Growth (December 2004). NBER Working Paper No. w11009. Available at SSRN: https://ssrn.com/abstract=641063

Peter J. Klenow (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Andrés Rodríguez-Clare

University of California, Berkeley - Department of Economics ( email )

579 Evans Hall
Berkeley, CA 94709
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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