Nahuis, R. and Van De Ven, J. (1999). Endogenous growth in a small open economy: Any policy lessons? De Economist, 147(3):353--360.

The Dutch economy has, in terms of economic growth, outperformed its European counterparts in recent years. This Dutch Miracle, as it is often referred to, is largely attributed to the improvements in allocative efficiency: structural reforms of the labour market and the social security system. The relieve of the distortions on the labour market has been relatively successful; the official unemployment rate is below 4%. From a long-term perspective, however, the removal of market failures on the labour market provides by no means a guarantee for sustained high growth rates. Absorption of idle labour tends to run into diminishing returns. Labour productivity growth has not returned to its level of the early seventies. These observations urge policymakers to pay attention to other market failures. Alleviating market failures related to productivity growth - that is, using the knowledge stock more efficiently - might put the economy into better shape for sustained growth. Non-rivalness and imperfect excludability of knowledge cause market failures in the generation and diffusion of knowledge. To which market failures should policymakers pay attention: to market failures related to human capital, imitation, or research and development? By discussing endogenous growth theory in the light of recent empirical findings, this communication attempts to highlight what is important for a small open economy. We conclude by evaluating current policy.