Modelling R&D and human capital for United States and European Union economies

Abstract

In this thesis, regarding technological improvements and formation of human capital as the engine of growth, I investigated public policy whose objective is to enhance Total Factor Productivity (TFP) through investments in innovation for United States (US) and European Union (EU) economies. To this end, first I documented and compared the R&D expenditures and human capital expenditures of US and EU countries for last two decades. Then, taking 2008 as base year I constructed Social Accounting Matrices (SAM) for both economies. Finally, I conducted subsidization policy with a general equilibrium model and investigated effects of public policy on economic growth, social wealth and welfare. In this study, I found that R&D subsidization policy enhances economic growth, social wealth and welfare in both countries but the enhancement is larger for EU economy.