The R&D based Endogenous Growth Model: R&D Workers, Skill Premium and Productivity Growth

Abstract

This paper attempts to explain the features of the recent U.S. economy by applying the transitional dynamics analysis of the R&D based endogenous growth model. It tries to explain the observed comovements of three variables: the relative wage rate of high skilled labour, the share of R&D workers and per capita output growth rate show a sharp decline in the beginning of 1970s followed by a gradual increase. The paper shows that an unexpected structural change, which induces a change in the allocation of high skilled workers, pushes the economy away from the steady state along the saddle path and the economy, thereafter, moves back gradually towards the steady state.