Romer’s Model of Technological Change

Endogenous Growth Models

Economic models where growth is generated from within the economy, particularly through technological change.

Romer’s Model of Technological Change (1990)

A model that highlights the role of a research sector in producing ideas and emphasizes the importance of human capital and existing knowledge.

Research Sector

A specific sector identified for producing ideas and new knowledge using human capital and existing knowledge.

ΔA = F(KA, HA, A)

The technology production function indicating that the change in technology depends on capital invested, human capital employed, and existing technology.

Human Capital (HA)

The skills, knowledge, and experience possessed by an individual or population, crucial for the R&D process.

Capital (KA)

Investment in physical resources used to produce new designs or technology in the R&D sector.

Partially Excludable

Characteristics of knowledge that allows inventors to retain some benefits through mechanisms like patents.

Non-rival Input

Resources or knowledge that can be used by multiple firms without diminishing its value or increasing costs.

Positive Spillover Effects

Benefits from new knowledge that other firms can utilize, leading to further innovations.

Market Incentives

Economic forces that encourage innovation and the creation of new technologies.

Ideas Over Resources

The concept that the production of new ideas and knowledge drives economic growth more than just physical resources.

Externalities in R&D

Effects of research and development activities that lead to unintended benefits for other firms and the economy.

Japan's Economic Growth Example

Cited by Romer as a case where a country with few natural resources achieved high growth through openness to ideas and technology.

Investment in R&D

The allocation of resources towards research and development to create new ideas or technological advancements.

R&D and New Designs

The process by which firms innovate through research, leading to the development of new technologies and products.

Incentives for R&D

The conditions that encourage firms to invest in research and development, including market mechanisms and patent protections.

Assumptions of the Romer model

• Economic growth is driven by technological change.
• Technological change results from intentional investment in research and development.
• Knowledge is a public good.
• Importance of human capital and innovation in fostering growth.