Knowledge and Development A Cross-Section Approach

Abstract

"This paper assesses the effects of knowledge on economic growth. By using an array of indicators, each of which represents an aspect of knowledge, as independent variables in cross-section regressions that span 92 countries for the period 1960 to 2000,
the paper shows that knowledge is a significant determinant of long-term economic growth. In particular, we find that the stock of human capital, the level of domestic innovation and technological adaptation, and the level of information and communications technologies (ICT) infrastructure all exert statistically significant positive effects on long-term economic growth.

More specifically with regard to the growth effects of the human capital stock, we find that an increase of 20 percent in the average years of schooling of a population tends to increase the average annual economic growth by 0.15 percentage point. In terms
of innovation, we find that a 20 percent increase in the annual number of USPTO patents granted is associated with an increase of 3.8 percentage points in annual economic growth. Lastly, when the ICT infrastructure, measured by the number of phones per 1,000 persons, is increased by 20 percent, we find that annual economic growth tends to increase by 0.11 percentage point."

According to the authors the research that has been conduced on productivity-led economic growth and its determinants over the past

ten years because of a belief that "economic growth due to rapid factor accumulation is subject to diminishing returns, and hence

is not sustainable." They suggest that "recently, there has been a growing interest in the contribution of knowledge to total factor

productivity growth, and consequently to sustainable long-term economic development."

The authors postulate that there exist "four preconditions that lead to knowledge becoming an effective engine of growth. These

four preconditions, or four pillars of the knowledge economy, are:

• An economic and institutional regime to provide incentives for the efficient use of existing and new knowledge and the

  flourishing of entrepreneurship.

• An educated and skilled population to create, share, and use knowledge well.
• A dynamic information infrastructure to facilitate the effective communication, dissemination, and processing of

  information.

• An efficient innovation system of firms, research centers, universities, consultants, and other organizations to tap into the

  growing stock of global knowledge, assimilate and adapt it to local needs, and create new technology.

The authors suggest "that the amount of knowledge and how it is used are key determinants of total factor productivity. They

believe that "strengthening the above four pillars of the knowledge economy will lead to an increase in the quantity and quality of

the pool of knowledge available for economic production. This will consequently increase productivity and thus economic growth."