2699493 - F D I, Human Capiitall and Educatiion iin...

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F F D D I I , , H H u u m m a a n n C C a a p p i i t t a a l l a a n n d d E E d d u u c c a a t t i i o o n n i i n n D D e e v v e e l l o o p p i i n n g g C C o o u u n n t t r r i i e e s s T T e e c c h h n n i i c c a a l l M M e e e e t t i i n n g g 13-14 December 2001, Paris FDI and Human Capital: A Research Agenda Magnus Blomström and Ari Kokko Stockholm School of Economics December 2001 organised by the O ECD Development Centre
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2 FDI and Human Capital: A Research Agenda Magnus Blomström and Ari Kokko Stockholm School of Economics December 2001 1. Introduction Recent decades, economists have begun to identify technical progress, or more generally, knowledge creation, as the major determinant of economic growth. Until the 1970s, the analysis of economic growth was typically based on neoclassical models that explain growth with the accumulation of labor, capital, and other production factors with diminishing returns to scale. In these models, the economy converges to a steady state equilibrium where the level of per capita income is determined by savings and investment, depreciation, and population growth, but where there is no permanent income growth. Any observed per capita income growth occurs because the economy is still converging towards its steady state, or because it is in transition from one steady state to another. The policies needed to achieve growth and development in the framework of these models are therefore straightforward: increases in savings and investment and reductions in the population growth rate shift the economy to a higher steady state income level. From the point of view of developing countries, however, these policies are difficult to implement. Low income and development levels are not only consequences but also causes of low savings and high population growth rates. The importance of technical progress was also recognized in the neoclassical growth models (Solow 1956, 1957), but the determinants of the level of technology were not discussed in detail: instead, technology was seen as an exogenous factor. Yet, it was clear that convergence in per capita income levels could not occur unless technologies converged as well. From the 1980s and onwards, growth research has therefore increasingly focused on understanding and endogenizing technical progress. Modern growth theory is largely built on models with constant or increasing returns to reproducible factors as a result of the accumulation of knowledge. education, training, and other investments in knowledge creation may generate externalities that prevent diminishing returns to scale for labor and physical capital. 1
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This note was uploaded on 01/15/2012 for the course ECON 101 taught by Professor Mikson during the Spring '08 term at Aarhus Universitet.

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2699493 - F D I, Human Capiitall and Educatiion iin...

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