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Increasing Returns and Long-Run Growth by Paul M. Romer is a scholarly article available to read on EtoBox.

This paper presents a fully specified model of long-run growth in which knowledge is assumed to be an input in production that has increasing marginal productivity. It is essentially a competitive equilibrium model with endogenous technological change. In contrast to models based on diminishing returns, growth rates can be increasing over time, the effects of small disturbances can be amplified by the actions of private agents, and large countries may always grow faster than small countries. Long-run evidence is offered in support of the empirical relevance of these possibilities. I. Introduction ## Because of its simplicity, the aggregate growth model analyzed by Ramsey (1928), Cass (1965), and Koopmans (1965) continues to form the basis for much of the intuition economists have about long-run growth. The rate of return on investment and the rate of growth of per capita output are expected to be decreasing functions of the level of the per capita capital stock. Over time, wage rates and capital-labor ratios across different countries are expected to converge. Consequently, initial conditions or current disturbances have no long-run effect on the level of output and consumption. Fo

Author

Paul M. Romer

Published

1986

Language

EN