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Money, Human Capital and Endogenous Market Structure in a Schumpeterian Economy

Qichun He and Xilin Wang ()

MPRA Paper from University Library of Munich, Germany

Abstract: We incorporate endogenous human capital accumulation into a scale-invariant Schumpeterian growth model with endogenous market structure. Endogenous human capital accumulation leads to continuous entry of firms. Therefore, continuous horizontal innovation is sustained by human capital accumulation in the absence of population growth and becomes a twin engine of long-run growth (together with vertical innovation). We then study monetary policy by considering a cash-in-advance constraint on consumption. We find that when the capital share in final good production is low (high), the effect of inflation on growth is positive (negative). We then use cross-country panel regressions to test the theoretical prediction and find that inflation and capital share have a significant, negative interaction effect on growth, which provides support for our theory.

Keywords: Monetary policy; Human capital; Endogenous market structure; Economic growth (search for similar items in EconPapers)
JEL-codes: E41 I15 O30 O40 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-gro, nep-mac and nep-tid
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