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Higher Education Subsidy Policy And R&D-Based Growth

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  • Morimoto, Takaaki
  • Tabata, Ken
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

  • Morimoto, Takaaki & Tabata, Ken, 2020. "Higher Education Subsidy Policy And R&D-Based Growth," Macroeconomic Dynamics, Cambridge University Press, vol. 24(8), pages 2129-2168, December.
    • Handle: RePEc:cup:macdyn:v:24:y:2020:i:8:p:2129-2168_10
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