Externalities and Growth

Pete Klenow and Andres Rodriguez-Clare

No 11009, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Externalities play a central role in most theories of economic growth. We argue that international externalities, in particular, are essential for explaining a number of empirical regularities about growth and development. Foremost among these is that many countries appear to share a common long run growth rate despite persistently different rates of investment in physical capital, human capital, and research. With this motivation, we construct a hybrid of some prominent growth models that have international knowledge externalities. When calibrated, the hybrid model does a surprisingly good job of generating realistic dispersion of income levels with modest barriers to technology adoption. Human capital and physical capital contribute to income differences both directly (as usual), and indirectly by boosting resources devoted to technology adoption. The model implies that most of income above subsistence is made possible by international diffusion of knowledge.

JEL-codes: O11 O33 O40 (search for similar items in EconPapers)
Date: 2004-12
New Economics Papers: this item is included in nep-dev
Note: EFG
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Citations: View citations in EconPapers (55)

Published as Klenow, Peter J. & Rodriguez-Clare, Andres, 2005. "Externalities and Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 11, pages 817-861 Elsevier.

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