New Technology, Human Capital, Total Factor Productivity and Growth Process for Developing Countries

Solowian view on miracle growth rate in NIEs as a result of productivity growth whereas many others (e.g. Krugman [1997]) convince that broad capital accumulation is only true engine underlying NIEs’ growth. Krugman’s view is correct in the short and mid terms, however in the long term, TFP is the main engine of growth. We underpin the importance of …xed costs, qualities of human capital, knowledge and new technology. We also show that the optimal strategy for a developing country consists of accumulating physical capital …rst and there is no research activity. When the country reaches a certain level of development, which is endogenously determined in the model, the technological progress may be generated.