A Model on Knowledge and Endogenous Growth

24 Pages Posted: 30 Mar 2005

See all articles by Derek H.C. Chen

Derek H.C. Chen

World Bank

Hiau Looi Kee

World Bank - Development Research Group (DECRG)

Date Written: March 2005

Abstract

This paper presents a model of endogenous growth in which the main engine of economic development is knowledge. Using a two-sector closed economy model that comprises of a conventional goods-producing sector and a research and development sector, our model incorporates two key aspects of knowledge: technology and human capital. Steady-state equilibrium conditions show that the growth rate of per capita income hinges on the growth rate of human capital. While the growth rate of human capital has been previously shown to affect the growth of the economy in transition between steady states or balanced growth paths, this paper is the first to link the growth rate of human capital to the steady-state growth rate of productivity and output per worker. Furthermore, this result does not exhibit scale effects or policy invariance, both of which have been longstanding concerns with the predictions of endogenous growth models developed in the 1990s.

Keywords: endogenous growth, human capital, scale effects, knowledge

JEL Classification: O41, O32

Suggested Citation

Chen, Derek H.C. and Kee, Hiau Looi, A Model on Knowledge and Endogenous Growth (March 2005). World Bank Policy Research Working Paper No. 3539. Available at SSRN: https://ssrn.com/abstract=678901 or http://dx.doi.org/10.2139/ssrn.678901

Derek H.C. Chen (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States
202-458-1602 (Phone)
202-522-1492 (Fax)

Hiau Looi Kee

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-473-4155 (Phone)
202-522-1159 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/hkee

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