Essays on growth: Theory and policy

Angel Miguel De La Fuente, University of Pennsylvania


Growth theory has become an indispensable tool in economics. It provides a natural framework not only for the study of development but also for work in macroeconomics. My first essay surveys the development of growth theory over the last four decades. I emphasize the relationship between technical progress and capital accumulation, and focus on the development of (i) a conceptual framework built around a market-oriented theory of innovation and the conceptualization of technical progress as the acquisition of information and (ii) a set of formal models based on the theory of dynamical systems. The other two essays explore some of the theoretical and policy implications of endogenous technical progress. Chapter II discusses some mechanisms that may help explain the polarization of the world income distribution. It shows how spillovers arising from the accumulation of human capital may give rise to a low-level equilibrium. Threshold effects arising from unidirectional spillovers across generations may yield a multiplicity of steady states, as in Azariadis and Drazen (1990). Reciprocal externalities may generate a multiplicity of equilibrium paths and hence a dynamic version of the coordination problem discussed by Cooper and John (1989) among others. In both cases, economies that are identical in all respects except for initial endowments may fare quite differently in the long run. The third chapter examines the effects of different forms of factor income taxation in a model of endogenous technical change driven by human capital accumulation and product innovation. Since three forms of investment are now available, the growth performance of the economy depends not only on the total volume of saving, but also on its composition. By influencing the allocation of resources among research, education and physical capital formation, fiscal policy has a powerful effect over the speed and pattern of growth. Some standard results concerning the relative efficiency of different forms of income taxation are reversed. For example, a higher tax on capital income may now lead to faster growth by directing resources to what Fellner (1970) calls 'progress generating activities.'

Subject Area

Economic theory

Recommended Citation

De La Fuente, Angel Miguel, "Essays on growth: Theory and policy" (1991). Dissertations available from ProQuest. AAI9200330.