Paul M Romer: Endogenous Growth Theory
- Paul M Romer, currently an economics professor at New York University’s Stern School of Business, is credited with laying the foundations of “endogenous growth theory”, a rich area of research into the regulations and policies that encourage new ideas and long-term prosperity.
- to Robert M Solow, winner of the 1987 Economics Prize, technological innovation was “exogenous”. It just happened and so long as it did, long-term growth in output and broad human welfare was guaranteed.
- However, to Romer, far from being “exogenous”, technological change was “endogenous” and arising from “intentional investment decisions made by profit-maximising agents”.
- According to him, policy makers should stop trying to fine-tune the business cycle and instead promote new technology.
William D Nordhaus:
- Professor William Nordhaus, of Yale University, was the first person to create a model that described the interplay between the economy and the climate.
- His fundamental contribution is in “endogenising” climate change in long-term growth models.
- The quantitative Integrated Assessment Models (IAMs) developed by him in the mid-1990s helped evaluate different economic growth paths with their implications for climate.
- IAMs were used in the newly released report of the IPCC.
- According to him, economic growth involves carbon-dioxide emissions contributing to global warming and climate change, which generates the greatest of negative externalities and market failures.
