Idea Gaps, Object Gaps, and Trust Gaps in Economic Development

Abstract

For many years, growth theorists focused exclusively on capital accumulation as the engine of growth, assuming technological change exogenous to the economic system.' In this view, growth in human and physical capital stock is central to economic growth and the only channel through which policymakers can sustainably stimulate an economy. Path-breaking advances in modeling the general equilibrium effects of nonconvexities then enabled a second generation of research that endogenized technological change, in essence, by positing externalities from human or physical capital. A more recent strain of the endogenous growth literature looks less to externalities from capital than to externalities from knowledge. Paul Romer's seminal essay synthesizes these two strains of growth theory brilliantly; this paper explicitly builds on Romer, in substance and title.