In this case, each firm maximizes profit by paying K and L their marginal products, without offering any additional payment for their contribution to technological progress.
Learning by doing formed the basis of the first model of endogenous growth theory, which is known as the AK model. The AK model assumes that when people accumulate capital, learning by doing generates technological progress that tends to raise the marginal product of capital, thus offsetting the tendency for the marginal product to diminish when technology is unchanged. The model results in a production function of the form Y = AK, in which the marginal product of capital is equal to the constant A. According to Aghion and Howitt (2009), the AK model predicts that a country’s …show more content…
In the goods sector, it is assumed to have constant returns to scale (similar to Solow-Swan growth model), whereas in the R&D sector, increasing returns to scale obtained (Romer 1986, 1990, 1996). This growth theory also states that output growth is an increasing function of population growth. This implies that positive population growth is necessary for sustained growth of output per worker. According to Jones (1998), higher population increases the number of researchers and more researchers mean more ideas, thus sustaining growth in the model. In this case, growth in ideas is clearly related to the growth in population. Again, people are the key inputs to the creative process. A larger population generates more ideas, and because ideas are non-rivalrous, everyone in the economy …show more content…
Human capital consists of the abilities, skills and knowledge of particular workers. The model of human capital differ from the Solow model by implying that moderate changes in the resources devoted to physical and human capital accumulation may lead to large changes in output per worker. This has been able to account for the potential differences across countries in income (Romer, 1996). Human capital is the main source of growth in several endogenous growth models as well as one of the key extensions of the neoclassical model. Since the term ‘human capital’ refers principally to workers’ acquisition of skills and know-how through education and training, the majority of studies have measured the quality of human capital using proxies related to education (such as, school-enrolment rates). A large number of studies has found evidence suggesting that educated population is a key determinant of economic growth (Barro, 1991; Mankiw et. al., 1992; Barro and Sala-i-Martin, 1995; Brunetti et. al., 1998, Hanushek and Kimko, 2000). However, there have been scholars who have questioned these findings and, consequently, the importance of human capital as substantial determinant of economic growth (e.g. Levine and Renelt, 1992; Benhabib and Spiegel, 1994; Topel, 1999; Krueger and Lindahl, 2001; Pritchett,
Learning by doing formed the basis of the first model of endogenous growth theory, which is known as the AK model. The AK model assumes that when people accumulate capital, learning by doing generates technological progress that tends to raise the marginal product of capital, thus offsetting the tendency for the marginal product to diminish when technology is unchanged. The model results in a production function of the form Y = AK, in which the marginal product of capital is equal to the constant A. According to Aghion and Howitt (2009), the AK model predicts that a country’s …show more content…
In the goods sector, it is assumed to have constant returns to scale (similar to Solow-Swan growth model), whereas in the R&D sector, increasing returns to scale obtained (Romer 1986, 1990, 1996). This growth theory also states that output growth is an increasing function of population growth. This implies that positive population growth is necessary for sustained growth of output per worker. According to Jones (1998), higher population increases the number of researchers and more researchers mean more ideas, thus sustaining growth in the model. In this case, growth in ideas is clearly related to the growth in population. Again, people are the key inputs to the creative process. A larger population generates more ideas, and because ideas are non-rivalrous, everyone in the economy …show more content…
Human capital consists of the abilities, skills and knowledge of particular workers. The model of human capital differ from the Solow model by implying that moderate changes in the resources devoted to physical and human capital accumulation may lead to large changes in output per worker. This has been able to account for the potential differences across countries in income (Romer, 1996). Human capital is the main source of growth in several endogenous growth models as well as one of the key extensions of the neoclassical model. Since the term ‘human capital’ refers principally to workers’ acquisition of skills and know-how through education and training, the majority of studies have measured the quality of human capital using proxies related to education (such as, school-enrolment rates). A large number of studies has found evidence suggesting that educated population is a key determinant of economic growth (Barro, 1991; Mankiw et. al., 1992; Barro and Sala-i-Martin, 1995; Brunetti et. al., 1998, Hanushek and Kimko, 2000). However, there have been scholars who have questioned these findings and, consequently, the importance of human capital as substantial determinant of economic growth (e.g. Levine and Renelt, 1992; Benhabib and Spiegel, 1994; Topel, 1999; Krueger and Lindahl, 2001; Pritchett,