Software Production, Human Capital and Endogenous Growth: Theoretical Analysis and Empirical Evidence from India

Propelled by the rise of a vibrant software industry the Indian economy has demonstrated rapid growth since the 1990s. A novel three-sector endogenous growth model that encapsulates the salient features of an information technology oriented economy is developed. The dynamic optimization problem leads to a balanced growth path equilibrium characterized by output, physical capital, software assets, human capital and consumption growing at a uniform rate. Major implications of the model are reflected in empirical evidence from the growth trajectories of Indian states. The human capital production apparatus has a significant impact on economic growth. This has critical policy implications.