GROWTH, HUMAN-CAPITAL SPILLOVERS AND INTERNATIONAL-POLICY COORDINATION

The paper is concerned with public policy and economic development in a world of interdependent economies. Its objective is to show how the international coordination of economic policy is a means of promoting growth across countries. The analysis is based on a two-country endoge nous growth model in which the production of human capital depends on country-specific tax-financed public expenditure and worldwide previou sly accumulated knowledge. We consider optimal policy as the outcome o f a dynamic game between benevolent governments. We show that both gro wth (which itself has no normative significance) and welfare are, inde ed, higher under cooperation than under non-cooperation.