Solow and the States: Capital Accumulation, Productivity, and Economic Growth

National, state, and local policymakers have increasingly focused their attention on policies toward economic growth, especially efforts to raise the rate of investment. Recent studies of economic growth have raised a debate over the role played by the investment rate in the long-run performance of the economy and, thus, over the impact of tax and other policies to alter investment incentives. Evidence from the states suggests that the effects of capital accumulation on growth are consistent with the predictions of the neoclassical growth model. At the same time, the estimates indicate a substantial role for human capital as well in raising productivity. Also, even in the context of a neoclassical growth model, changes in the rate of investment have a sustained impact on the pace of economic growth.