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Are Nonconvexities Important For Understanding Growth?

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  • Paul Romer

Abstract

Everyday experience and a simple logical argument show that nonconvexities are essential for understanding growth. Compared to previous statements of this well known argument, the presentation here places more emphasis on the distinction between two of the fundamental attributes of any economic good: rivalry and excludability. It also emphasizes the difference between public goods and the technological advances that are fundamental to economic growth. Like public goods, technological advances are rionrival goods. Hence, they are inextricably linked to nonconvexities. But in contrast to public goods, which are nonexcludable, technological advances generate benefits that are at least partially excludable. Hence, innovations in the technology are for the most part privately provided. This means that nonconvexities are relevant for goods that trade in private markets. Consequently, an equilibrium with price-taking in all markets cannot be sustained. Concluding remarks describe some of the recent equilibrium growth models that do not rely on price-taking and highlight some of the implications of these models.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3271.

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Date of creation: Feb 1990
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Publication status: published as The American Economic Review, Vol. 80, No. 2, pp. 97-103, (May 1990).
Handle: RePEc:nbr:nberwo:3271

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  1. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers, University of Western Ontario, Department of Economics 8904, University of Western Ontario, Department of Economics.
  2. Grossman, G.M. & Helpman, E., 1989. "Endogenous Prduct Cycles," Papers, Princeton, Woodrow Wilson School - Public and International Affairs 144, Princeton, Woodrow Wilson School - Public and International Affairs.
  3. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
  4. Grossman, G.M. & Helpman, E., 1989. "Endogemour Product Cycles," Papers, Tel Aviv 10-89, Tel Aviv.
  5. Segerstrom, Paul S & Anant, T C A & Dinopoulos, Elias, 1990. "A Schumpeterian Model of the Product Life Cycle," American Economic Review, American Economic Association, American Economic Association, vol. 80(5), pages 1077-91, December.
  6. Luis A. Rivera-Batiz & Paul M. Romer, 1991. "International Trade with Endogenous Technological Change," NBER Working Papers 3594, National Bureau of Economic Research, Inc.
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