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This paper presents a model of endogenous growth in which the main engine of economic development is knowledge. Using a two-sector closed economy model that comprises of a conventional goods-producing sector and a research and development sector, our model incorporates two key aspects of knowledge: technology and human capital. Steady-state equilibrium conditions show that the growth rate of per capita income hinges on the growth rate of human capital. While the growth rate of human capital has been previously shown to affect the growth of the economy in transition between steady states or balanced growth paths, this paper is the first to link the growth rate of human capital to the steady-state growth rate of productivity and output per worker. Furthermore, this result does not exhibit scale effects or policy invariance, both of which have been longstanding concerns with the predictions of endogenous growth models developed in the 1990s.

Capita Income --- Capital --- Capital Accumulation --- Capital Stock --- Conventional Wisdom --- E-Business --- Economic Development --- Economic Growth --- Economic Theory and Research --- Emerging Markets --- Factors Of Production --- Growth --- Growth Rate --- Growth Rate of Output --- Growth Rates --- Inequality --- International Economics & Trade --- Labor --- Labor Force --- Level Of Technology --- Macroeconomics and Economic Growth --- Neoclassical Models --- Political Economy --- Poverty Reduction --- Private Sector Development --- Pro-Poor Growth --- Production Function --- Sector Model --- State Equilibrium --- Technical Progress --- Trade and Regional Integration --- Trade Liberalization