Growth and the Smart State

Philippe Aghion and Alexandra Roulet
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Alexandra Roulet: Department of Economics, Harvard University, Cambridge, Massachusetts 02138

Annual Review of Economics, 2014, vol. 6, issue 1, 913-926

Abstract: As countries develop, the main driver of economic growth shifts from imitation to innovation. These two sources of growth require different policies and institutions. In particular, in this article we argue that the transition from an imitation-based to an innovation-based economy calls the old welfare state model into question. It is not so much the size of the state that is at stake but rather its governance. What we need to foster economic growth in developed economies is not a reduced state but a strategic state, which acts as a catalyst using selective and properly governed support to the market-driven innovation process. This idea of a strategic state that targets its investments to maximize growth in the face of hard budget constraints departs both from the Keynesian view of a state sustaining growth through demand-driven policies and from the neoliberal view of a minimal state confined to its regalian functions.

Keywords: knowledge externalities; credit constraints; targeted policies; governance; welfare state (search for similar items in EconPapers)
JEL-codes: E0 E5 E6 H10 H20 H50 L50 O31 O40 P10 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (10)

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