The Origins of Endogenous Growth

Jo:fin:al of Economic Pers( ectiaes

8

1

Winter 1994

Pages 3-22

The Origins of Endogenous Growth

Paul M Romer

The phrase "endogenous growth" embraces a diverse body of theoretical and empirical work that emerged in the 1980s. This work distinguishes itself from neoclassical growth by emphasizing that economic growth is

an endogenous outcome of an economic system, not the result of forces that impinge from outside. For this reason, the theoretical work does not invoke exogenous technological change to explain why income per capita has increased by an order of magnitude since the industrial revolution. The empirical work does not settle for measuring a growth accounting residual that grows at...

different rates in different countries. It tries instead to uncover the private and public sector choices that cause the rate of growth of the residual to vary across countries. As in neoclassical growth theory, the focus in endogenous growth is on the behavior of the economy as a whole. As a result, this work is complementary to, but different from, the study of research and development or productivity at the level of the industry or firm.

This paper recounts two versions that are told of the origins of work on endogenous growth. The first concerns what has been called the convergence controversy. The second concerns the struggle to construct a viable alternative to perfect competition in aggregate-level theory. These accounts are not surveys. They are descriptions of the scholarly equivalent to creation myths, simple stories that economists tell themselves and each other to give meaning and structure to their current research efforts. Understanding the differences beriveen these two stories matters because they teach different lessons about the relative importance of theoretical work and empirical work in economic analysis and they suggest different directions for future work on growth.

Paul M. Rmner is Professor of Btonomits, University of California, Berkeley, Calafornia.

Version #1: The Convergence Controversy

The question that has attracted the most attention in recent work on growth is whether per capita income in different countries is converging. A crucial stimulus to wor n on this question ,vas the creation of nev,' data sets with information on income per capita for many countries and long periods of time (bladdison, 198g Heston and Summers, 1991).

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