Increasing Returns and New Developments in the Theory of Growth

Abstract

From the beginning, growth theory has been faced with technically challenging questions about increasing returns and the way to capture ideas in a model of market exchange.Initially, reliance on perfect competition forced growth theory to narrow its scope.Recently, new tools for studying dynamic equilibria with nonconvexities, externalities, and imperfect competition have allowed growth theory to address broader questions like: Why have growth rates tended to increase over time?Why is it that flows of capital are not sufficient to equalize wages in different countries?How is it that trade policy, or aggregate research and development expenditure, or the extent of patent protection influences the rate of growth?

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