Investment-Specific Technical Change and the Production of Ideas

I argue that an aggregate model in which the generation of knowledge is an important factor of economic growth can be reconciled with several otherwise puzzling empirical findings on this link if knowledge affects output through investment-specific technical change. In the model, there may be a weak empirical relationship between measures of knowledge and total factor productivity even when the generation of knowledge is the predominant channel through which economic growth takes place. The results also suggest that intertemporal spillovers in the production of knowledge are likely to be small