On the role of productive government spendings for convergence of a growing economy with heterogenous specialists

This paper employs a dynamic framework to compare the effects of alternative government activities on convergence of industrialized economies to the technology frontier. The government’s Instruments include facilitating private investment and education policy. The latter enhances skills of heterogenous specialists and imply the decision on their respective shares. The analysis distinguishes between an isolated policy of a single economy and coordinated policies of various countries. Which policy maximizes the speed of convergence is crucially affected by the economy’s state of development. A policy switch between the mentioned instruments while catching-up may be preferable. Karlsruhe Institute of Technology (KIT), Kollegium am Schloss 20.14, D-76 131 Karlsruhe, [email protected]. Friedrich-Loeffler-Str. 70, D-17489 Greifswald, [email protected]. ††This paper has been prepared for the workshop in Honor of Stephen J. Turnovsky that took place May 20-22, 2010 at the Institute for Advanced Studies, Vienna. The authors are grateful to valuable comments of Santanu Chatterjee and the workshop participants.