Are Nonconvexities Important for Understanding Growth?

14 Pages Posted: 4 Apr 2004 Last revised: 11 Jun 2022

See all articles by Paul M. Romer

Paul M. Romer

National Bureau of Economic Research (NBER)

Date Written: February 1990

Abstract

Everyday experience and a simple logical argument show that nonconvexities are essential for understanding growth. Compared to previous statements of this well known argument, the presentation here places more emphasis on the distinction between two of the fundamental attributes of any economic good: rivalry and excludability. It also emphasizes the difference between public goods and the technological advances that are fundamental to economic growth. Like public goods, technological advances are rionrival goods. Hence, they are inextricably linked to nonconvexities. But in contrast to public goods, which are nonexcludable, technological advances generate benefits that are at least partially excludable. Hence, innovations in the technology are for the most part privately provided. This means that nonconvexities are relevant for goods that trade in private markets. Consequently, an equilibrium with price-taking in all markets cannot be sustained. Concluding remarks describe some of the recent equilibrium growth models that do not rely on price-taking and highlight some of the implications of these models.

Suggested Citation

Romer, Paul M., Are Nonconvexities Important for Understanding Growth? (February 1990). NBER Working Paper No. w3271, Available at SSRN: https://ssrn.com/abstract=319587

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