Human Capital Accumulation and Growth in an ICT-based Economy

This paper develops a model of endogenous growth that can be used to explain some important features of an economy in which ICT (Information and Communication Technologies) play a central role. In particular, human capital accumulation is present in the economy, and this mechanism turns out to be the true engine of growth of the model. Some essential aspects of an ICT economy are taken into account, in particular the embodied nature of technological progress (typically the innovations that are present in the ICT sector are embodied in the new capital goods), the central role of R&D (the amount of resources devoted to it is high, particularly in the USA), the link between innovation and market power (ICT markets are non-competitive) and the accumulation of human capital (education is important in acquiring the knowledge necessary to use the new technologies). Following the contributions of Romer (1990), Rivera-Batiz and Romer (1991) and Lucas (1988) (for the modelisation of R&D activity and of human capital accumulation) and that of Boucekkine and de la Croix (2003) (for the the modelisation of an ICT-based economy) a multi-sectoral model is built. In particular, this model considers discrete time with infinite horizon, endogenous growth, horizontal differentiation and human capital accumulation. Furthermore, technological progress is mainly embodied (the idea is that new softwares need new hardware to be run) and the innovators have a market power represented by copyrights (the inventor of a new variety of software obtains these copyrights forever). The economy consists of four sectors (the final good sector, the equipment sector, the intermediate good sector, the R&D sector), and is characterised also by a representative household that consumes, saves for future consumption, supplies human capital for production activities and accumulates human capital by devoting a fraction of its time to non-productive activities (schooling). The analysis of the optimality conditions that hold at the equilibrium, of the balanced growth path and of the steady state of the model allow to obtain explicitely the value of the growth rates of the different quantities. In particular, from this analysis it turns out that the growth rate of production in the economy depends only on technological and preference parameters, while it doesn’t depend neither on the absolute dimension of the economy (i.e. its total human capital stock) nor on the population growth (that is equal to zero). As a consequence, an important property of the model is that it doesn’t display any scale effect. In addition, the long-run growth rate of the economy doesn’t depend on the productivity of the final good sector, of the equipment sector and of the intermediate good sector, while it is affected by the productivity of schooling. Hence, in this model the true engine of growth is represented by the accumulation of human capital.