When Romer meets Lucas: On human capital, imperfect competition and growth
This paper studies the economic determinants of the inter-sectoral allocation of skills within an R&Dbased growth model with human capital accumulation. I find that steady-state growth is driven only by incentives to accumulate skills and is independent of scale effects. In the model imperfect competition has a positive growth effect, while influencing the allocation of human capital to the different economic activities. Contrary to general wisdom, the share of resources invested in R&D turns out not to be monotonically increasing in the equilibrium output growth rate and the market power enjoyed by producers of technologically advanced goods.
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