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: Suggested Citation
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