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The Role of Human Capital in Structural Change and Growth in an Open Economy: Innovative and Absorptive Capacity Effects

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  • Brita Bye
  • Taran Faehn

Abstract

Since the financial crisis in 2008, slow growth has riddled Europe and the Covid-19 pandemic is amplifying the challenge. Promoting economic growth and transforming to a more knowledge-based industrial structure will be high on the agenda for the coming decades. We study how more and better human capital can contribute to knowledge accumulation and structural change by means of a dynamic endogenous growth model, with Norway as a numerical case. Human capital has two main roles in productivity growth: to increase the innovative capacity by participating in research and development (R&D), and to increase the absorptive capacity in sectors that trade and can learn from abroad. We find that in a small, open economy sectors where human capital, R&D and trade interact, and enable absorption, tend to grow fastest.

Suggested Citation

  • Brita Bye & Taran Faehn, 2021. "The Role of Human Capital in Structural Change and Growth in an Open Economy: Innovative and Absorptive Capacity Effects," CESifo Working Paper Series 8857, CESifo.
    • Handle: RePEc:ces:ceswps:_8857
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    More about this item

    Keywords

    absorptive capacity; computable general equilibrium model; endogenous growth; human capital; innovation; research and development;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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