Technology and Skill: Twin Engines of Growth
A model is developed in which two complementary forms of investment contribute to growth—technology and skill acquisition, and growth takes two forms—TFP and variety growth. The rate of TFP growth depends more heavily on the parameters governing skill accumulation, while variety growth depends, roughly, on the difference between the parameters governing technology and skill accumulation. Conditions for the existence of a BGP are established, and the effects of various parameters are characterized. In an example, subsidies to skill acquisition (technology acquisition) are powerful tools for stimulating TFP growth (variety growth). Investment incentives off the BGP are also explored.
An early version of this paper titled “Technology, Skill and Long Run Growth” was given as the Lionel McKenzie Lecture at the SAET Meetings, Rio de Janeiro, 2016. I am grateful to Mark Aguiar, Marios Angeletos, Gadi Barlevy, Paco Buera, Ariel Burstein, Bob Lucas, Jesse Perla, Rob Shimer, Chris Tonetti, and participants at the M&M Development Workshop at the Chicago Fed, the Minnesota Summer Workshop in Macroeconomics, the 2017 SED Meetings, and the IMF for useful comments. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.