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How Important Are Scale Effects for Growth When Knowledge Is a Public Good?

Fernando Sánchez‐Losada

Scandinavian Journal of Economics, 2019, vol. 121, issue 2, 763-782

Abstract: In this paper, by proposing an R&D accumulation law for an economy with an expanding number of firms, I seek to reconcile the following three facts: the positive relationship between the fraction of income allocated to R&D expenditure and growth; the positive relationship between the number of firms and total factor productivity growth; and knowledge as a non‐rival and non‐excludable good. There are scale effects because of the public nature of knowledge, but the economy also grows in the absence of population growth. I find that population growth explains one‐fifth of market income growth but only one‐sixteenth of efficient income growth.

Date: 2019
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