On Growth Theory

Growth theory flourished in the 1950s and 1960s, died, and has now been resurrected. Romer (1986) led the way, but it needed Lucas’ (1988) uncanny knack of creating followers to beget the now large and growing literature. The aim of the new growth theories is to have an account of an economy’s growth rate which is not exogenous to the theory. In what follows I make an attempt at a somewhat general formulation of the problem which appears to be needed. For at the moment there is a bewildering variety of models, all relying on special functional forms and special assumptions. Most of these models are ‘closed’ in the sense that they have enough relations to determine an equilibrium growth rate. In one, everything hinges on the production of human capital, in another this is ignored and we focus on R&D, while in yet another it is the process by which the variety of goods is increased which makes the world go round. There are common features but they are not easy to discern. Moreover for each process singled out as central, for instance the production of human capital, one can think of a large number of others which, plausibly, could also claim centrality.