From Solow to Romer: Teaching endogenous technological change in undergraduate economics. (January 2018)

• Record Type: Journal Article
• Authors: Chu, Angus C.
• Is Part Of: International review of economics education. Volume 27(2018)
• Page Start: 10
• Page End: 15
• Publication Date: 2018-01
• Subjects: A22 -- O30; Economic growth -- Endogenous technological change -- The Romer model; Economics -- Study and teaching -- Periodicals; Economics -- Study and teaching; Periodicals; 330.0711
• DOI: 10.1016/j.iree.2018.01.006
• Languages: English
• ISSNs: 1477-3880

Abstract

Abstract: Undergraduate students learn economic growth theory through the seminal Solow model, which takes the growth rate of technology as given. To understand the origin of technological progress, we need a model of endogenous technological change. The Romer model fills this important gap in the literature. However, given its complexity, undergraduate students often find the Romer model difficult. This paper proposes a simple method of teaching the Romer model. We add three layers of structure (one at a time) to extend the familiar Solow model into the less familiar Romer model. First, we incorporate a competitive market structure into the Solow model. Then, we modify the competitive market structure into a monopolistic market structure. Finally, we introduce an R&D sector that invents new products.