Sources of U.S. Economic Growth in a World of Ideas

At least since 1950, the U.S. economy has benefited from increases in both educational attainment and research intensity. Such changes suggest, contrary to the conventional view, that the U.S. economy is far from its steady-state balanced growth path. This paper develops a model in which these facts are reconciled with the stability of average U.S. growth rates over the last century. In the model, long-run growth is driven by the worldwide discovery of new ideas, which in turn is tied to world population growth. Nevertheless, a constant growth path can temporarily be maintained at a rate greater than the longrun rate provided research intensity and educational attainment rise steadily over time. Growth accounting with this model reveals that 30 percent of U.S. growth between 1950 and 1993 is attributable to the rise in educational attainment, 50 percent is attributable to the rise in worldwide research intensity, and only about 10 to 20 percent is due to population growth in the idea-producing countries. JEL Classification: O40, E10 An earlier version of this paper was circulated under the title “The Upcoming Slowdown in U.S. Economic Growth.” I would like to thank Paul David, Zvi Griliches, Michael Horvath, Pete Klenow, Paul Romer, Matthew Shapiro, Robert Solow, Steve Tadelis, John Williams, Alwyn Young, and the participants of various seminars for helpful comments and Jesse Czelusta for excellent research assistance. Three anonymous referees provided especially useful suggestions. Financial support from the National Science Foundation (SBR-9818911), the Olin Foundation, and the Sloan Foundation is gratefully acknowledged. Sources of U.S. Economic Growth 1