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e. A country with higher stock of human capital also exhibits increasing returns to scale. Countries with higher stocks of human capital will have faster economic growth. In contrast to the previous model, the government has a crucial role in this model.dou to the fact that the producer of research are compensated sub optimally, government should subside the R&D sector (Grossman and Helpman 1990).

The appropriate R&D sector subside will be the most difficult decision faced by government. As second best solution, the government should subsidize human capital accumulation. The importance of the role of government was evident in the study by (King and Rebelo 1990). Their paper suggested that differences in public policy incentive can affect the acquisition of human and physical capital and hence steady state growth rate.

Further extensions to economic growth models included the imperfect competition framework. (Romer 1987; Grossman and Helpman 1990; Romer 1990) as pointed out earlier, investment in R&D activities can generate long run economic growth if there is some form of ex-post monopoly power. Government policies are important in many areas such as taxation, providing infrastructure, securing property right, patent and regulation of trade and financial market. Besides generating their own research, developing country can benefit through learning by watching. (King and Rebelo 1990)

Through the diffusion of technology and demonstration effects, developing countries can imitate the innovation done by developed countries at substantially lower costs that performing their own research and development. (Nelson and Phelps 1966)suggested that higher level of human capital would enable countries better to absorb new technology. However, even though higher levels of human capital have been found significantly to affects growth, the direction of causality between education and g is not obvious.

Another area of research is the analysis of the relationship between fertility and economic growth. Incorporating the analysis of fertility choice to the Lucas 1988 model, Becker Murphy tamura1990 showed that per capita g and net fertility tend to move inversely. Fertility rate tend to fall with per capita income in middle to high income countries but for lower income countries fertility rate tend to rise with per capita income.(Abuhasan 1996)

Another class of models known as the AK type replace the assumption of diminishing marginal productivity of capital with the non-diminishing marginal productivity of the accumulable factor of production to achieve positive and suitable steady state growth rate in the economy(Jones and Joulfaian 1992)

The clearest distinction between the growth theory of the 1960s and that of the 1990s is that the recent research pays close attention to empirical implications and to the relation between theory and data. However, much of this applied perspective involved applications of empirical hypothesis from the older theory, notably the neoclassical growth model’s prediction of conditional convergence. The cross-country regressions motivated by the neoclassical model surely became a fixture of research in the 1990s. An interesting research development in this area involves assessment of the robustness of these kinds of estimates. Other empirical analyses apply more directly to the recent theories of endogenous growth, including t