Growth, Welfare, and Trade in an Integrated Model of Human-Capital Accumulation and Research

Abstract

R&D-based models of growth predict an unrealistic degree of responsiveness of long-run growth rates to policy changes. The present paper “exogenizes” the equilibrium growth rate in the Grossman-Helpman model by endogenizing human capital along the lines proposed by Uzawa and Lucas: the pace of long-run growth is unaffected by R&D subsidies, flat-rate taxes, basic research, and—in highly developed countries—by cross-border knowledge spillovers and international trade. A complete dynamic analysis is performed.