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Scale Effect in the Romer Model

In: ADVANCED MACROECONOMICS An Introduction for Undergraduates

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  • Angus C. Chu

Abstract

In this chapter, we will explore an important but counterfactual property of the Romer model. Recall from the Romer model the following key equation:gN≡N˙t/Nt=θLR,t,where LR,t is the number of R&D workers and θ > 0 is an R&D productivity parameter. This equation implies that the growth rate gN of technology is increasing in the number of R&D workers LR,t. This property is known as the scale effect in the literature. Jones (1995) points out that this prediction from the Romer model is inconsistent with empirical evidence. Jones (1995) documents that the number of R&D scientists in the US steadily increased from 1950 to the late 1980s; however, the growth rate of technology did not exhibit any positive trend during this period; see Figures 14.1 and 14.2 in which we look at more recent data from 1990 to 2013. Motivated by this empirical fact, Jones developed a modified version of the Romer model, which is free from the scale effect…

Suggested Citation

  • Angus C. Chu, 2020. "Scale Effect in the Romer Model," World Scientific Book Chapters, in: ADVANCED MACROECONOMICS An Introduction for Undergraduates, chapter 14, pages 113-120, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9781786349132_0014
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    Keywords

    Macroeconomics; Dynamic General Equilibrium; Economic Growth; Endogenous Technological Change; Monetary Policy; Fiscal Policy; Business Cycles; Unemployment; Market Failure; The Neoclassical Growth Model; The Romer Model; The Schumpeterian Growth Model; The Solow Growth Model; The Ramsey Model; The New Keynesian Model;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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