ECONOMIC GROWTH AND GLOBAL ECONOMIC ANALYSIS: Use Of The New Growth Theory

A non-technical overview of the new growth theory is provided from both an analytical and empirical perspective. Following a brief analytical sketch of the R&D based models, the results from fitting two structural models to data are presented. Results show the relative impacts on growth from trade and R&D based policies including technological spillovers from trade. The mechanism of inter-sectoral adjustments to the long-run growth path is also discussed. While the theory provides new insights into growth, some skepticism is raised as to its general applicability as an important structure in policy models. The need to apply behaviorally consistent dynamic models, e.g., of the Ramsey genre, to empirically based policy models is strongly supported