2.5 — The Macroeconomics of Development III: Endogenous Growth Theory — Class Content

Thursday, September 23, 2021

We will not have class Thursday September 23. Instead, I have a video lecture on this material.

We will have our next discussion on Tuesday, September 27. Please see the required readings below.


We now turn to the famous Romer model, or “endogenous growth” model of Paul Romer (and related papers by others). Here (inside a Solow-type model) TFP is something economies (firms and governments) can explicitly invest in (via R&D, education, etc.) to determine TFP endogenously.


Required Reading

  • Chapter 3 in Easterly, 2002, The Elusive Quest for Growth

Questions to Guide Your Reading

  • Easterly accuses the Solow model of “capital fundamentalism.” What does he mean by this? How are (other) ideas about development and development policy affected by “capital fundamentalism?”

  • Easterly’s primary accusation against “capital fundamentalism” is that it is incompatible with “people respond to incentives.” How is this evident (or not) in the Solow model? The Romer model?

  • How do the events of the early to mid 20th Century (the Great Depression, industrialization and forced savings in the Soviet Union, etc) find their way into mid-century growth models?

  • If (physical, human, etc) capital is so important for growth, why can’t we just “send” capital to developing countries and watch them grow?

  • Consider the difference between “catch up growth” and “cutting-edge growth.” How does this explain the rapid growth of countries like Singapore, Hong Kong, China, South Korea, Taiwan, etc?

  • The U.S. is on the frontier, and fighting hard for “cutting-edge growth.” Do you think we “are running out of ideas” or that we are growing slowly because there are diminishing returns to innovation?


Below, you can find the slides in two formats. Clicking the image will bring you to the html version of the slides in a new tab. Note while in going through the slides, you can type h to see a special list of viewing options, and type o for an outline view of all the slides.

The lower button will allow you to download a PDF version of the slides. I suggest printing the slides beforehand and using them to take additional notes in class (not everything is in the slides)!


Download as PDF