Knowledge, economic structure, and growth

This paper proposes a two-sector growth model to examine the dynamic interactional relationships between capital and knowledge. The economy consists of two production sectors—industry and service—and one knowledge production sector—research institutions and universities. The university is financially supported by the government by taxing the service and industrial sectors. We provide a compact framework for analyzing the interactions of the three sectors with a given population and a fixed preference structure of the population. The model also determines the dynamics of the price of the industrial good, the wage rate, and the interest rate. First, we guarantee the existence of equilibria and provide the stability conditions. Then, we examine the effects of changes in the government's research policy and some other parameters upon the system.