Paul Romer: Ideas,Nonrivalry, and Endogenous Growth

In 2018, Paul Romer and William Nordhaus shared the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. Romer was recognized “for integrating technological innovations into long‐run macroeconomic analysis”. This article reviews his prize‐winning contributions. Romer, together with others, rejuvenated the field of economic growth. He developed the theory of endogenous technological change, in which the search for new ideas by profit‐maximizing entrepreneurs and researchers is at the heart of economic growth. Underlying this theory, he pinpointed that the nonrivalry of ideas is ultimately responsible for the rise in living standards over time.     

The Financial Sector and Economic Growth*

The Mankiw–Romer–Weil (1992) augmented Solow–Swan ( Solow 1956 ; Swan 1956 ) model is extended to incorporate the financial sector in this study. Distinguishing between financial capital, physical capital and human capital, the research attempts to identify, in particular, the effects of financial capital on economic growth. The effects of financial sector efficiency on economic growth are also examined. The financial sector augmented model is tested on a cross‐section of 35 economies. Strong support is found for the model.     

Endogenous human capital formation,distance to frontier and growth

We examine human capital's contribution to economy-wide technological progress through two channels – imitation and innovation – innovation being more skill-intensive than imitation. We develop a growth model based on the endogenous ability-driven skill acquisition decision of an individual. It is shown that skilled human capital is growth enhancing in the “imitation-innovation” regime and in the “innovation-only” regime whereas unskilled human capital is growth enhancing in the “imitation-only” regime. Steady state exists and, in the long run, the economy converges to the world technology frontier. In the diversified regime, technological progress raises the return to ability and generates an increase in wage inequality between and within groups – consistent with the pattern observed across countries.     

Innovation strategies,process and product innovations and growth: Firm-level evidence from Brazil

Using World Bank ICS 2000–2002 data from Brazilian manufacturing firms, this paper identifies innovation strategies of firms – in particular internal development (“technology make”) and external acquisition (“technology buy)” – and their effect on successful process and product innovations. It subsequently explores the importance of process and product innovations for firm growth. Successful process and product innovations occur mostly through “technology buy” (mostly through the purchase of machinery and equipment), either alone or in combination with a “technology make” strategy. The option of only relying on internal development is less successful. The results on firm growth indicate that innovative performance is an important driver for firm growth. It is particularly the combination of product and process innovations that significantly improves firm growth. Both innovation and growth performance are supported by access to finance. Skills of workforce and management matter, but not necessarily tertiary education levels. The impact of international linkages on innovative and growth performance is mixed.     

Cognition,Social Impulse,and the Principle of Adaptation: Insights into the Peirce-Veblen Connection

This article seeks to offer insights into the connections between Charles S. Peirce and Thorstein B. Veblen regarding their understanding of the logic of scientific thought and cognition. In this sense, this work explores how both Veblen and Peirce dismissed the Cartesian notion of unmediated cognition and how they sought to depict cognition as a process. Furthermore, this article presents Peirce’s concept of “social impulse” and Veblen’s “principle of adaptation” as complementary perspectives on science and cognition that have strong evolutionary content.     

Vested Interests and the Common Man as Seen Through Monetary and Fiscal Policy: Flooding Wall Street or Main Street?

There are many angles through which a critical observer can analyze the divergent class interests in most aspects of macroeconomic management. We examine the insistence of financial authorities of all major economies on reviving economic activity through monetary — and not fiscal — policy as a particularly clear example of favoring vested interests over the interests of the common man. Nearly a century after Thorstein Veblen wrote on the subject, one can find many parallel elements to the political landscape of the times. Today, the common man is often expressed by the “99%,” and many accept that the dominant vested interest is that of global banks. Unlike in Veblen’s times, economists today have many historical experiments in economic management that they can consult. By employing logic, historical experience, and an understanding of our current global finance-led capitalism, we offer a preliminary institutionalist analysis of the mechanisms of current monetary policy that “flood” Wall Street, while leaving employment, production, and investment — Main Street — all but forgotten. We then explain how vested interests have abandoned fiscal policy and left a deflationary macroeconomic environment.     

Veblen’s System of Conspicuous Waste

Abstract:

The touchstone by which Thorstein Veblen evaluated an expenditure was “whether it furthers the life process taken impersonally.” For Veblen, the economic problem involved the problem of social provisioning, the way a community provides for itself. To a large degree, social provisioning has been impeded by the system of conspicuous waste, a “scheme of properties, decencies, and standards of living, the economic motive of which is competitive spending.” The system of conspicuous waste represents a cultural unfolding of conspicuous waste, prompted by the introduction of continuous-mass production in the late nineteenth, early twentieth centuries. Conspicuous waste refers to the allocation of resources, time, and effort that detract from the life process. Veblen rejected the idea that the system of conspicuous waste benefits society. For Veblen, the standard of living refers to that level of consumption at which people are expected to consume. Products that prove serviceable, however, may also serve as symbols of invidiousness. Veblen used the system of conspicuous waste to compare the diverse cultural responses of England and Germany to the same technology in the early twentieth century. The system, however, plays a central role in absorbing increases in output and maintaining profits. Whether it can continue to do so remains questionable.     

Veblen,Veblenian Social Practices,and Prosperity Theology

Abstract:

At the turn of the twentieth century (1910), Veblen published an essay which explored the relationship between Christianity and capitalism by focusing on the interaction between the two institutions as they evolved. Veblen’s analysis begins by detailing the evolution of Christianity prior to the age of industrialized capitalism, after which he explores the evolutionary interplay between the two. Just over ten years prior to the publication of this essay (1899), Veblen published the Theory of the Leisure Class while over ten years after the publication of the essay (1923), Veblen dissected the sales efforts of Christianity in a note titled “Salesmanship and the Churches.” Nearly 100 years later, these three works together explain a modern and distinctly American religious movement—Prosperity Theology. This research argues that Prosperity Theology as practiced in the United States over the past nearly half century embodies and integrates all three of these works by Veblen and proposes the conceptual term “Veblenian Social Practice.”     

Contracts between a Firm and Its Constituents during Bankruptcy Crises

Thorstein Veblen highlighted a number of human instincts, one of which was the “parental bent.” In contrast to the other “positive” instincts, the parental bent is specifically other-regarding in that Veblen described it in terms of utilizing knowledge for the betterment of society. Veblen’s “parental bent” stresses the social embeddedness of humanity and the human instinct to care. Our ability to care is partially predicated on our social roles and the values embedded within those roles. Critically, this is influenced by the configuration of institutions within a society. Care is grossly under-valued. By drawing upon recent contributions to care in the context of an increased financialization of the economy and society, we seek to expand upon Veblen’s insight, and to argue that the most significant deficit confronting our capitalist society is not of the fiscal variety, but resides in care.     

Veblen and the New Growth Theory: Community as the Source of Capital's Productivity

A century ago Thorstein Veblen argued that knowledge, which is produced and possessed by the community as a whole, is the foundation on which the productivity of "capital" rests. Orthodox economists chose to ignore Veblen and instead accepted John Bates Clark's definition of capital and the marginal productivity theory that goes with it. Recently, however, mainstream economists working on the "New Growth Theory" have rejected Clark's approach and have redefined capital so as to emphasize the importance of knowledge as well as its social character. Nevertheless, they still have an important lesson to learn from Veblen about growth, namely that technological development is nothing less than a process of cultural transformation.     

Herbert J. Davenport on Conspicuous Consumption and the Economics of Feminism

This article analyzes Herbert J. Davenport’s discussions of conspicuous consumption and feminism. Even though these (typically) Veblenian topics represent two “episodes” in many respects disconnected with the central body of Davenport’s theoretical interests, the assessment of Davenport’s views on these matters enlarges our knowledge of the development of his thought. Our analysis shows how Davenport can be enrolled among the forerunners of the modern theory of positional goods. Moreover, our article offers some new findings on the impact of Veblen’s ideas on one of his closest students at the Chicago University.     

Variety of products,public capital,and endogenous growth

This paper develops an extension of the endogenous growth model with variety expansion presented in Romer [Romer, P.M., 1990. Endogenous technical change, Journal of Political Economy 98, part 2, S71–S102] by considering public capital accumulation. Characterizing the transitional dynamics, the growth rate of consumption traces (and available number of intermediate goods also might trace) an S-shaped converging path to the equilibrium growth rate, similar to a logistic growth curve, if the intensity of public capital is sufficiently high. We also show that public investment enhances economic growth because it stimulates demand for intermediate goods and raises the market interest rate.     

制度变迁与新兴产业——理论分析与实证

新兴产业作为一种全新经济形态的产业群,具有独特的特征与发展规律,已有的研究较少关注新兴产业发展的影响因素,更未有对各要素尤其是制度迁在新兴产业发展中的贡献度进行实证检验的文献.如Romer建立的“知识溢出”模型以及Lucas的“人力资本溢出”模型,尽管强调人力资本的重要性,但由于人力资本积累及其所导致的人力资本异质性最终是以技术进步为导向的,均属于技术决定论的范畴.任何产业都是在一定的制度背景、环境下成长起来的,而新兴产业作为一种处于萌芽期、成长期的产业,更是需要良好的制度环境与制度安排,制度伴随着新兴产业的发展过程,是决定其成长快慢的首要因素.     

The Politics of Capital Flight in the Global Economic Crisis

This paper studies the effects of economic governance and political institutions on portfolio investment during the Global Economic Crisis of 2008–2009. Leveraging a unique cross‐national dataset on portfolio flows immediately following the collapse of Lehman Brothers in September 2008, it shows that countries with “better institutions” – those with more (or less) democratic, more (or less) constrained or more accountable political systems – were no less vulnerable to portfolio outflows than countries with “worse institutions.” However, countries with better governance prior to the crisis – those with better regulatory apparatuses, rule of law, property rights, and those considered less politically risky – experienced lower net portfolio capital outflows after Lehman. Governance is in fact the strongest predictor of portfolio capital flows during the global flight to liquidity, while political institutions perform poorly. The findings shed light onto the political factors that mediated how the collapse of Lehman affected national financial markets the world over, and have implications for literatures on the political economy of foreign investment, as well as for broader topics of institutions, governance, and economic performance.     

Does the introduction of stock exchange markets boost economic growth in African countries?

We assess whether the introduction of private equity capital markets affects economic growth in African countries. We address this issue by focussing on stock exchange markets as the predominant type of new equity markets, using a Diff-in-Diff regression method. The analysis uses a panel data set from 48 Sub-Saharan countries over the time range of 1970–2018. 23 countries are part of the “treated” group – which introduced international stock exchanges – and 25 “untreated” countries serve as the control group. Our results show that when compared with the time period prior to the introduction of stock exchange markets, GDP per capita rises by the amount of 532 US$ (around 40% of the Sub-Saharan average) after the introduction of equity capital markets in the treated countries. Over the ten years post introduction, the effect is hump-shaped, with effects becoming statistically significant from the first year after implementation, with a peak in the 5th year, and it then becomes statistically insignificant from then onwards.     

Externalities,Productivity and Sustained Growth

This paper shows that the existence of endogenous growth, in the closed‐form solution, in a single sector economy with a convex technology in an overlapping generations (OLG) framework, which attempts to fill the current gap in endogenous growth theory. It finds there is an unbounded growth when trade, in the form of knowledge spillover, affects labor productivity through the formation of human capital with self‐education that is not an independent sector but builds the human capital here. This conclusion holds even though there is the “limited income” expressed as the “non‐increasing wage/investment ratio” for each generation. Moreover, it shows the convergence of growth rates for each country, which is unique and constant, while the growth rate per capita negatively relates with each country's population growth rate. Also, there is no “poverty trap” with the introduction of externalities that is different from existing literature.     

Dynamical analysis of the R&D-based growth model with a regime switch

Several empirical studies suggest that advanced economies experience a growth regime switch from factor accumulation to knowledge accumulation. To investigate the mechanism of such a regime switch, this study develops a concise and flexible dynamic model based on Romer (J Polit Econ 98:S71–S102, 1990) by introducing two types of endogenously supplied R&D input capital. The model replicates the growth patterns of developed and underdeveloped nations, clarifies the important role that capital plays in the difference between them, and presents several implications for interest-rate subsidies and official development assistance. Further, it shows that if a country enjoying long-run growth has little initial capital, its initial economic development will be based on capital accumulation. When the capital stock becomes sufficient for supporting R&D, the economy will achieve long-run growth through R&D.     

Sources of Canadian economic growth

We apply modern ideas‐oriented growth accounting, based on the semi‐endogenous growth theory of Jones (2002), to compare the sources of Canadian and US economic growth between 1981–2014. This framework allows us to distinguish between transition dynamics and steady state growth as well as quantify their respective contributions. We find that the bulk of the 1.1 percentage points total average Canadian growth rate of output per hour has been due to transitional factors, mainly capital intensity and domestic human capital growth driven by educational attainment. The growth in excess ideas (total ideas growth minus steady state growth) has contributed a small share of 0.06 percentage points. Two features stand out in comparison to the US growth experience over the same period. First, over a full percentage point of the average US growth of 1.64% is due to excess ideas growth. Second, the “constant growth view” that reconciles large sources of transitional growth with relatively stable average growth is not supported in Canada. We estimate a relatively low elasticity of output with respect to world research effort as the reason behind the small share of R&D‐oriented sources of Canadian growth.     

Technology Adoption, Human Capital, and Growth Theory

The paper explores a model in which growth is determined by a combination of human capital and technology adoption. At the heart of the model is the notion of "contiguous knowledge"—the idea that knowledge spreads out a certain distance. Because of this property of knowledge, a country can adopt existing technology only when it is sufficiently close to the technological frontier. Unlike the neoclassical growth model, the proposed model predictions are pessimistic for countries that are far away from the frontier. The model is thus able to account both for rapid growth episodes and economic stagnation.     

Planning and Urban Growth: An Anglo-American Comparison

Understanding the complexity of institutional change is a necessary step in gaining deeper knowledge of economic performance over time, and it is one of the main challenges in the research agenda of institutionalism. Institutional change can be studied using a variety of theoretical approaches. We study some of the main approaches to institutional change in original economic institutionalism and new institutional economics. First, after comparing the approaches of Émile Durkheim and Thorstein Veblen, we focus on the contributions of the instrumental value theory and other original institutional traditions in the study of institutional change. Second, new institutional economics improved on the weak points of rational choice institutionalism regarding institutional change and incorporated the “institutions-as-rules” approach (Douglass North) and the “institutions-as-equilibria” approach (Avner Greif, Masahiko Aoki). We analyze both approaches to institutional change. Furthermore, we present an updated nonintegral overview of approaches to institutional change, show several interconnections between original and new institutionalisms, and conclude that the dialogue between the different theories of institutional change is relevant and beneficial.