Openness, Human Development, and Fiscal Policies: Effects on Economic Growth and Speed of Adjustment

36 Pages Posted: 15 Feb 2006

Date Written: July 1993

Abstract

The model developed here postulates that learning through experience plays a critical role in raising labor productivity over time, with three major consequences. First, the steady-state growth rate (of output) becomes endogenous and is influenced by government policies. Second, the speed of adjustment to steady-state growth is faster, and enhanced learning further reduces adjustment time. Third, both steady-state growth and the optimal net rate of return to capital are higher than the sum of exogenous rates of technical change and population growth. Simulation results confirm the model`s faster speed of adjustment, while regression analysis explains a large part of divergent growth patterns across countries in terms of the extent of openness and human development and of the quality of fiscal policies.

JEL Classification: F43, H3, H5

Suggested Citation

Villanueva, Delano, Openness, Human Development, and Fiscal Policies: Effects on Economic Growth and Speed of Adjustment (July 1993). IMF Working Paper No. 93/59, Available at SSRN: https://ssrn.com/abstract=883531

Delano Villanueva (Contact Author)

World Bank

1818 H Street, N.W.
Washington, DC 20433
United States

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