How much does innovation matter for economic growth?

The aim of this paper is to gain new insight on the determinants of economic growth. More precisely, it disentangles the contribution of an increase in the stock of ideas that exceeds the rate of growth in the steady state and the growth inherent to the steady state.

Following Romer (1990) and Jones (2000, 2002) this paper uses an aggregate production function. The paper also models the evolution of the stock of ideas following the generalisation of Jones (1995). The analysis decomposes growth utilising the estimated parameters inherent to the ideas function.

This article presents a growth accounting exercise that estimates total factor productivity for three Southern European economies. Systematic comparison of the countries illustrates the importance of innovation for economic growth. This exercise shows the main growth patterns over the last 50 years, and highlights the principal determinants by specifying an ideas function.

This study yields recent timeframe for explaining per capita income variations within economies and observed differences across economies.