Theme Issue On Endogenous vs. Exogenous Growth Guest Editors' Introduction Suppose income per capita in a nation is growing at an average rate of 2 percent per year. Then, material standards of living in that country will double in approximately 35 years. N o w suppose there is some change in government policy or d e m o g r a p h y that slows income per capita growth to only 1 percent per year. Material standards of living will n o w not double until roughly 70 years. In the first case, children will become twice as welloff as their parents w h e n they become adults. In the latter case, they will only be twice as well off as their grandparents were almost three-quarters of a century before. The above example demonstrates a widely k n o w n characteristic of comp o u n d growth, namely that even small differences in growth rates lead to sizable differences in long-run outcomes. W h e n applied to the growth of income per capita, the implications for the welfare of future generations is simply awesome, especially since high-income nations can also afford many luxuries, such as a cleaner environment, a greater emphasis on the arts, etc. H o w much better off will our descendants be relative to ourselves? H o w long will it take for billions of people around the world to escape from the deep levels of poverty in which they currently suffer? Given the potential benefits, findings ways to increase the long-run growth rate of income per capita (assuming that the benefits are not skewed too m u c h to the few) becomes the paramount role for a government's economic policy, and so a better u n d e r s t a n d i n g of h o w growth rates can be increased is of primary importance to both economists and policy makers. A second question of interest concerns the historical growth performance of individual countries and the evolution of the world income distribution. While some countries have prospered, others remain in a mire of poverty with little hope of benefiting from the fruits of m o d e r n economic growth. Figure 1 and Table 1 in Parente (this issue) show substantial international income differences. For example, Figure 1 indicates that 25 of the world's poorest countries are 16 to 32 times poorer than the United States on averKnowledge, Technotogny, & Policy, Winter 200I, Vol. 13, No. 4, pp. 3r6.
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age. Table 1 shows that world mean income is catching up but is still less than one-fifth of the U.S. mean income level in 1996. These facts beg the question of what creates sustained long-run economic growth to begin with. A second and related question is why not all poor countries replicate the so-called few growth miracles that some other countries have experienced. Beginning in the late 1980"s, economists led by Paul Romer launched a revival of economic growth issues. Before this rebirth, the most frequently cited model of long-run growth was one developed by Robert Solow in the 1950s. One drawback of this model, however, was that long-run growth was taken to be exogenous to the model. Technology growth was not derived from the actions of agents within the model but assumed a priori. Therefore, the Solow model could not explain why countries might exhibit different long-run growth rates since such differences needed to be assumed at the beginning of the analysis (although it still could explain why there might be rich and poor countries in the long run).The revival spawned by Paul Romer no longer assumed that technology growth was exogenous but, instead, was created by the actions of profit maximizing agents. In this setting, long-run growth became endogenous to the economic model and so was dependent upon the economic environment. Thus, the model could explain why long-run growth rates might differ among nations. A further implication was that certain government policies could now affect longrun growth outcomes. Romer's work led to an explosion of further research upon these topics. Suddenly, hundreds of economists rethought many of the issues surrounding why economic growth occurred and what factors or policies might be able to increase long-run growth rates. Although Romer considered the level of R&D as the driving force behind growth, other researchers examined political systems, cultural traits, education levels, various government policies, and a host of other factors as to why growth rates might differ across nations. Economic growth was no longer viewed as exogenous but potentially dependent upon a myriad of factors. This special issue will examine some of these issues. Its purposes are twofold and so the issue is divided into two sets of essays. The first set provides critiques of the endogenous growth literature, identifying its strengths and weaknesses. The second set then discusses some of the potential determinants of economic growth with a focus upon the role of technology creation. Beginning with critiques of the endogenous growth literature, Omar A1Ubaydli and Terence Kealey provide two criticisms of the Romer model. The first is that Paul Romer's model of technology growth is misspecified. Romer's model relies upon technological spillovers across firms as an input to further technology creation. A1-Ubaydli and Kealey argue against the presence of these spillovers and therefore take issue with the foundation of the Romer model. They also disagree with an implication of the Romer model that argues for government subsidies for R&D since the private provision of R&D resources is not socially optimal in the Romer model.
