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This paper contributes to the growth literature by developing a formal growth model that provides the basis for studying institutions and technological innovation and examining how human capital and institutional constraints affect the transitional and steady state growth rates of output. The model developed in this paper shows that the reason that growth models a-la-Romer (1990) generate endogenous growth is the use of a set of restrictive and unrealistic assumptions regarding the role of institutions in the economy. The baseline model developed in this paper shows that the long-run growth of the economy is intrinsically linked to institutions and suggests that an economy with institutions that retard or prevent the utilization of newly invented inputs will experience low levels and low growth rates of output.
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