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Appropriate growth policy: a unifying framework

Aghion, P.; Howitt, P.; (2006) Appropriate growth policy: a unifying framework. Journal of the European Economic Association , 4 (2-3) pp. 269-314. 10.1162/jeea.2006.4.2-3.269. Green open access

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Abstract

In this lecture, we use Schumpeterian growth theory, where growth comes from quality-improving innovations, to elaborate a theory of growth policy and to explain the growth gap between Europe and the US. Our theoretical apparatus systematizes the case-by-case approach to growth policy design. The emphasis is on three policy areas that are potentially relevant for growth in Europe, namely: competition and entry, education, and macropolicy. We argue that higher entry and exit (higher firm turnover) and increased emphasis on higher education are more growth-enhancing in countries that are closer to the technological frontier. We also argue that countercyclical budgetary policies are more growth-enhancing in countries with lower financial development. The analysis thus points to important interaction effects between policies and state variables, such as distance to frontier or financial development, in growth regressions. Finally, we argue that the other endogenous growth models, namely the AK and product variety models, fail to account for the evidence on the relationship between competition, education, volatility, and growth, and consequently cannot deliver relevant policy prescriptions in the three areas we consider.

Type: Article
Title: Appropriate growth policy: a unifying framework
Open access status: An open access version is available from UCL Discovery
DOI: 10.1162/jeea.2006.4.2-3.269
Publisher version: http://dx.doi.org/10.1162/jeea.2006.4.2-3.269
Language: English
Additional information: © 2006 The MIT Press
Keywords: Growth
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/17713
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