The role of technology spillovers in convergence

Abstract

Purpose – The purpose of this paper is to evaluate the role of human capital technology spillovers across countries in converging their growth rates. Design/methodology/approach – This paper develops a closed form mathematical endogenous growth model and applies it to a small open economy using simulation and calibration techniques. Findings – The paper finds that human capital technology spillovers play an important role in convergence in growth rates across countries regardless of tax policy and that there will be non-convergence in levels if saving rates are differentially distorted across countries because of taxes. In addition, the exploration of the optimal tax reveals that such a structure is a consumption tax. Research limitations/implications – This paper implies that higher levels of human capital are important in attaining higher levels of per capita income. Originality/value – This paper shows that some implications for the endogenous growth model are equivalent to those from the Solow model. This implies that some empirical tests commonly used will not resolve which model is more appropriate.Economic growth, Economic models, Economic theory, Fiscal policy, Taxes