Endogenous Technological Change

Posted: 17 Nov 2009

See all articles by Paul M. Romer

Paul M. Romer

National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: 1990

Abstract

Technology has been evolving and improving over the years, thus impacting growth and competition among businesses and industries. Considering these technological advancements, three arguments are presented: technological change acts as the base for economic growth; technological change occurs due to intentional actions by individuals who consider market incentives; and instructions for utilizing raw materials are much different than those related to other economic goods. These arguments do not support typical growth models, which are defined by the relationship between price-taking behaviors and equilibrium. Several issues, including rivalry, excludability, and nonconvexities, are identified as further proof that economic aggregate growth models are not as well supported as previous research would indicate. Based on this information, the proposed balanced equilibrium model considers such factors as capital (units of consumption), labor (number of people), human capital (cumulative effect of education and training), and an index of the level of technology (number of designs). The model is operationalized, and strengths and weaknesses of the proposed model are examined, including the means of accounting for such issues as imperfect competition within the market. Implications of the model as related to such factors as economic growth, international trade, and R&D are also discussed. As suggested by the model, the rate of technological change is influenced by the rate of interest, and a positive relationship appears to exist between human capital and an economy's growth rates, implying that policies that provide incentives for research and/or subsidize education and training should strengthen economic growth. (AKP)

Keywords: Industrial research, R&D, Technological change, Capital formation, Labor force, Human capital, Incentives, Market competition, Economic growth, International trade, Higher education

Suggested Citation

Romer, Paul M., Endogenous Technological Change (1990). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1506720

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