about me
art
biz
Chess
corrections
economics
EconoSchool
Finance
friends
fun
game theory
games
geo
mathstat
misc
NatScience
... more
Profil
Logout
Subscribe Weblog

 
Recently, Arnold Kling pointed to one of the conclusions that can be found in Chapter 10 (Growth and Ideas, Charles I. Jones) of the Handbook of Economic Growth:
Thinking carefully about the way in which ideas are different from other economic goods leads to a profound change in the way we understand economic growth. The nonrivalry of ideas implies that increasing returns to scale is likely to characterize production possibilities. This leads to a world in which scale itself can serve as a source of long run growth. The more inventors we have, the more ideas we discover, and the richer we all are. This also leads to a world where the first fundamental welfare theorem no long necessarily holds. Perfectly competitive markets may not lead to the optimal allocation of resources. This means that other institutions may be needed to improve welfare. The patent system and research universities are examples of such institutions, but there is little reason to think we've found the best institutions--after all these institutions are themselves ideas.
Makes sense and I recommend skimming through this Chapter. The first 10 pages are accessible without any background in growth theory. Jones then outlines a simple idea-based growth model - the very same model that is nicely analyzed in David Romer's book "Advanced Macroecomics" (p. 99). After that he gets down to business and introduces a production function that characterizes technological change in the tradition of Dixit and Stiglitz as increasing variety in intermediate capital goods (don't worry, they are used symetrically).

Arnold Kling concludes that "Jones adds focus on the theory that population growth raises economic growth by increasing the number of inventors." Yep, on page 9 Jones happily quotes Phelps:
One can hardly imagine, I think, how poor we would be today were it not for the rapid population growth of the past to which we owe the enormous number of technological advances enjoyed today... If I could re-do the history of the world, halving population size each year from the beginning of time on some random basis, I would not do it for fear of losing Mozart in the process.
and on page 64 (6.2 The Linearity Critique) he writes:
More generally, I would make the claim that population growth is the least objectionable place to locate a linear differential equation in a growth model, for two reasons. First, if we take population as exogenous and feed in the observed population growth rates into an idea-based growth model, we can explain sustained exponential growth.
I am pretty sure and I also hope that population growth is not the driving force behind economic growth for developed countries (any longer). (Don't miss this nice introduction to fertility and human capital , pp. 103-108)

related items:
Asymptotically Free Goods, Arnold Kling