Notes on Endogenous Growth Theory and Romer's Model

Introduction

• Technological progress is crucial for the economic growth of a country.
• Economists often categorize it as an external factor, but Romer's model views it as an internal part of the economic ecosystem.
• Focus of the presentation: Endogenous growth theory, Romer's model, assumptions, diagrams, etc.

Endogenous Growth Theory

• Definition: Economic growth resulting from internal factors of the economy rather than external ones.
• Key Factors:
  • Innovation
  • Knowledge
  • Human Capital
• Internal factors drive productivity, which positively impacts the economy.

Comparison with Exogenous Growth Theories

• Exogenous Growth Theory: Factors outside the economy (e.g., externalities).
• Endogenous Growth Theory: Focuses on internal improvements (innovation, knowledge, human capital) leading to growth.

Importance of Technological Advancement

• Technological advancements are not external but integral to economic progress.
• Key advancements lead to increased productivity (e.g., evolution of technology in phones).

Assumptions of Endogenous Growth Theory

1. Government Supports:
   • Provide incentives and subsidies for the private sector.
   • Encourage R&D investments.
2. Education Investment:
   • Education yields increasing returns to scale.
   • Families invest in education expecting long-term gains.
3. Support for Entrepreneurs:
   • Government policies should foster innovation and reduce taxes (e.g., removal of angel tax for startups).
4. Infrastructure Development:
   • Good infrastructure facilitates productivity and growth.
5. Intellectual Property Rights:
   • Protecting innovations through patents and copyrights.

Romer's Model Overview

• Key Focus: Technology changes are internal factors driven by intentional actions (R&D, investments).
• Knowledge Sharing: Accumulation of knowledge benefits the economy without depleting resources.
• Production of New Knowledge:
  • Depends on existing knowledge and number of researchers.
  • Labor divided into two classes: production of goods and production of knowledge.

Graphical Representation

• Population Growth Impact:
  • Population growth enhances knowledge accumulation, resulting in a steeper growth curve in productivity.

Sustainable Economic Growth

• Focus on knowledge and innovation is necessary for long-term growth.
• Government’s role:
  • Support education, R&D, and remove financial barriers for sustainable development.

Limitations of Endogenous Growth Theory

• Lack of empirical evidence supporting the theory.
• Insufficient distinction between physical capital (machines) and human capital (knowledge).
• Disregards the role of organizations and other critical factors affecting growth.

Conclusion

• Endogenous growth theory emphasizes the importance of internal factors in driving economic growth.
• Continuous investment in knowledge and technology is essential for sustainable economic development.
• Feedback and comments encouraged from viewers.