Recent endogenous growth theory allows for an expansion in both the variety of goods and their quality. The paper introduces human capital accumulation into this framework. Two types of knowledge exist: basic knowledge acquired by households while not employed and product specific knowledge acquired by firms as costly R&D activity. Product specific knowledge is only partially excludable among firms and two long-run solutions may exist: In the first one variety is permanently growing and market structure converges towards monopolistic competition. The second solution is characterized by constant variety and increasing quality produced by a constant number of (possibly large) firms. Neither solution requires population growth. The paper shows that growth is higher under constant variety. It also discusses the arrival of a new general purpose technology and the social planners solution. JEL Classification
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