Premium
The spillover effects of innovative ideas on human capital
Author(s) -
Alpaslan Barış,
Ali Abdilahi
Publication year - 2018
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/rode.12344
Subject(s) - economics , endogenous growth theory , human capital , spillover effect , stock (firearms) , investment (military) , public investment , public capital , order (exchange) , capital deepening , public spending , public infrastructure , physical capital , microeconomics , public economics , macroeconomics , production (economics) , financial capital , capital formation , finance , economic growth , mechanical engineering , politics , political science , law , engineering
Abstract This paper extends a two‐period overlapping generations model of endogenous growth where the interactions between public infrastructure and human capital with research and development (R&D) activities and growth are studied. The paper makes two important contributions. First, it accounts for the spillover effect of the stock of ideas on learning, which in turn promotes the production of innovative technologies. In doing so, it brings to the fore a two‐way interaction between human capital and innovation. The paper then applies various econometric methods which confirm the above theoretical thesis. Second, the solutions of the model emphasize the important role public spending on infrastructure, human capital and R&D can play in promoting economic growth. However, the findings also show that trade‐offs in the allocation of public spending may inevitably emerge. In particular, investment in public infrastructure at the expense of spending on R&D is less likely to succeed in promoting economic growth, whereas it may be more effective to foster growth through an offsetting cut in another productive component, namely, education. In light of these potential trade‐offs, governments in low‐income countries need to use their limited budgets as part of holistic measures in order to achieve efficient outcomes.