Population and Ideas: A Theory of Endogenous Growth
December 3, 1998 -- Version 4.0 All growth models are linear in some sense, and the endogenous growth literature can be read as the search for the appropriate linear differential equation. Linearity is a "crucial" assumption, in the sense used by Solow (1956), and it therefore seems reasonable to ask that this assumption have an intuitive and compelling justification. This paper proposes that such a justification can be found if the linearity is located in an endogenous fertility equation. It is a fact of nature that the law of motion for population is linear: people reproduce in proportion to their number. By itself, this linearity will not generate per capita growth, but it is nevertheless the first crucial ingredient of such a model. The second crucial ingredient is increasing returns to scale. A justification for increasing returns, rather than linearity in the equation for technological progress, is the fundamental insight of the idea-based growth literature according to this view. Endogenous fertility together with increasing returns generates endogenous growth.
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