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Higher Education Subsidy Policy and R&D-based Growth

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  • Takaaki Morimoto

    (Graduate School of Economics, Osaka University,Institute of Social and Economic Research, Osaka University, Japan)

  • Ken Tabata

    (School of Economics, Kwansei Gakuin University)

Abstract

We examine how a subsidy policy for encouraging more individuals to pursue higher education affects economic growth in an overlapping generations model of R&D-based growth, including both product development and process innovation. We show that such a policy may have a negative effect on the long-run economic growth rate. When the market structure adjusts partially in the short run, the effect of an education subsidy on economic growth is ambiguous and depends on the values of the parameters. However, when the market structure adjusts fully in the long run, the education subsidy expands the number of firms but reduces economic growth. These unfavorable predictions of an education subsidy on economic growth are partly consistent with the empirical findings that mass higher education does not necessarily lead to higher economic growth.

Suggested Citation

  • Takaaki Morimoto & Ken Tabata, 2018. "Higher Education Subsidy Policy and R&D-based Growth," Discussion Paper Series 178-2, School of Economics, Kwansei Gakuin University, revised Feb 2019.
    • Handle: RePEc:kgu:wpaper:178-2
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    Keywords

    Higher Education; Occupational Choice; R&D; Product Development; Process Innovation;
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