01 Aug 2005

Human Capital, R&D and Competition in Macroeconomic Analysis

Erik Canton / Bert Minne / Ate Nieuwenhuis / Bert Smid / Marc van der Steeg

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European Network of Economic Policy Research Institutes (ENEPRI) Working Paper No. 38, 64 pages

Long-run per capita economic growth is driven by productivity growth. Major determinants of productivity are investments in education and research, and the intensity of competition in product markets. While these ideas have been incorporated into modern growth theories and tested in empirical analyses, they have not yet found their way to applied macroeconomic models used to forecast economic developments. In this paper, the authors discuss various options to include human capital, R&D and product market competition in a macroeconomic framework. They also study how policy can affect the decisions to build human capital or to perform research, and how competition policy impacts on macroeconomic outcomes.