Showing papers by "Robert M. Solow published in 2000"

Growth Theory: An Exposition

Abstract: In the preface to the first edition of Growth Theory (copyright 1970), the author writes: "I have tried to give some feeling for the scope of aggregate theory of growth, a notion of technical details, and some idea of the directions in which future research is likely to go. About four years ago, the OUP NY economics editor suggested to Professor Solow that he bring this book up to date, because of the large amount of recent literature, often referred to as the "new growth theory," or more technically as "endogenous growth theory". This second edition of Growth Theory, which grew out of that conversation, begins with the author's Nobel Prize Lecture "Growth Theory and After" (1987) followed by the original six chapters of the first edition. The first edition appeared in 1970; the author maintains that basic growth theory is still best summarized in these chapters, using what is often classified as "exogenous growth theory." In the 70s, which happened to coincide witha worldwide productivity slowdown, very little new work occurred in growth theory. It wasn't until the 1980s that a surge of new writing appeared, with the work of Roemer, Lucas, and others, what the author refers to as "an astonishing burst of theoretical and empirical research that still continues." The author developed "a second half" of the book for this edition, six entirely new chpaters in which he discusses new growth theory (endogenous growth theory) and its relationship to exogenous theory. As a "bridge" between the two sets of chapters, he has written an essay entitled "Intermezzo" in which he discusses the relatively inactive period for growth theory in the 70s, before introducing the "new" endogenous theory of growth and contrasting it with earlier work. Solow is quick to agree that older growth theory can aptly be described as "exogenous," because the growth rate itself was left unexplained, or rather was considered a "given" (basically a result of the actual rate of labor-augmenting technology). But treating the growth rate as exogenous does not make it a permanent constant or inexplicable. Certainly things can be said about a variety of (exogenous) factors affecting the growth rate; nevertheless the "old" theory did not provide, or try to give, a systematic theory of the growth rate. To sum up, according to the author, the way to understand exogenous growth theory is to show how aggregate output adjusts to the rate of population growth and the rate of technological process, whatever they happen to be and for however long the persist (treated in Chapters 1-6 and the "Intermezzo"). By contrast, the main contribution of the (new) endogenous grotwh theory is to propose a systematic theory of technological progress, a model that actually explains the rate of growth. It is the contention of the author that no theory of innovation or growth can come up with a formulaic way to arrive at a growth rate. For that reason he believes there is something arbitrary introduced into all endogenous theories of the rate of growth. They claim to explain more than they can be expected to do. Rather than trying to pin down determinants of any "steady-state" growth rate, exogenous growth theory describes trends and policies that increase growth, including the growth rate. For reasons made explicit in the book, the author deals with "AK"theory, convergence, and international cross-section studies, with only the passing attention he believes they deserve. In the "second half of the book," starting in Chapter 7, the author recasts the older (exogenous) model (Chapters 1-6) so that it can be more easily compared with new models. Chapters 8-11 takes a close analytical look at hte key models: Lucas (8); Roemer (9); Grossman/Helpman (10); Aghion and Howitt (11). In each chapter he shows how an unwarranted assumption creeps into these models that try to determin growth rate endogenously. The final chapter looks at lessons from the new growth theory and suggests where gaps may usefully be filled in future research. Despite his criticisms of the new growth theory, the author is quik to acknowledge outstanding contributions made by the new generation of theorists. This is an important book that will be required reading in graduate programs in macroeconomics as well as specific courses on growth theory, at both the undergraduate and graduate levels. No other book provides such a broad overviwe of the whole field and its evolution to the present.

Toward a Macroeconomics of the Medium Run

Abstract: These days macroeconomics has become more respectable than it used to be. I can remember when many economists liked to say: Microeconomics is not problematic, but I just don’t understand macroeconomics. There was a definite implication that something must be wrong with macroeconomics, not with the observer. Of course macroeconomics cannot be “exact;” it has to work by rough analogy and empirical compromise. Maybe a certain raffishness is inevitable. Most economists work on microeconomic problems, with increasing use of new microeconomic data. But now it is widely understood that macroeconomics is at the heart of economics; it will not do to be snooty about it. This centrality will continue, for the best possible reason: the need to understand current events, especially unfavorable ones, and to formulate policies— even benign neglect is a policy—to

The neoclassical theory of growth and distribution

Abstract: The paper surveys the neoclassical theory of growth. As a preliminary, the meaning of the adjective "neoclassical" is discussed. The basic model is then sketched, and the conditions ensuring a stationary state are illustrated. The issue of the convergence to a stationary state (and that of the speed of convergence) is further considered. A discussion of "primary factors" opens the way to the "new" theory of growth, with endogenous technical progress. A number of extensions of the basic model are then recalled: two-sector and multi-sectoral models, overlapping generations models, the role of money in growth models. JEL Codes: O41, E25 Keywords: Distribution, Growth, Income Distribution, Income

An Interview with Franco Modigliani

Abstract: Franco Modigliani's contributions in economics and finance have transformed both fields. Although many other major contributions in those fields have come and gone, Modigliani's contributions seem to grow in importance with time. His famous 1944 article on liquidity preference has not only remained required reading for generations of Keynesian economists but has become part of the vocabulary of all economists. The implications of the life-cycle hypothesis of consumption and saving provided the primary motivation for the incorporation of finite lifetime models into macroeconomics and had a seminal role in the growth in macroeconomics of the overlapping generations approach to modeling of Allais, Samuelson, and Diamond. Modigliani and Miller's work on the cost of capital transformed corporate finance and deeply influenced subsequent research on investment, capital asset pricing, and recent research on derivatives. Modigliani received the Nobel Memorial Prize for Economics in 1985.In macroeconomic policy, Modigliani has remained influential on two continents. In the United States, he played a central role in the creation of a the Federal Reserve System's large-scale quarterly macroeconometric model, and he frequently participated in the semiannual meetings of academic consultants to the Board of Governors of the Federal Reserve System in Washington, D.C. His visibility in European policy matters is most evident in Italy, where nearly everyone seems to know him as a celebrity, from his frequent appearances in the media. In the rest of Europe, his visibility has been enhanced by his publication, with a group of distinguished European and American economists, of “An Economists' Manifesto on Unemployment in the European Union,” which was signed by a number of famous economists and endorsed by several others.This interview was conducted in two parts on different dates in two different locations, and later unified. The initial interview was conducted by Robert Solow at Modigliani's vacation home in Martha's Vineyard. Following the transcription of the tape from that interview, the rest of the interview was conducted by William Barnett in Modigliani's apartment on the top floor of a high-rise building overlooking the Charles River near Harvard University in Cambridge, Massachusetts. Those concluding parts of the interview in Cambridge continued for the two days of November 5–6, 1999 with breaks for lunch and for the excellent espresso coffee prepared by Modigliani in an elaborate machine that would be owned only by someone who takes fine coffee seriously.Although the impact that Modigliani has had on the economics and finance professions is clear to all members of those professions, only his students can understand the inspiration that he has provided to them. However, that may have been adequately reflected by Robert Shiller at Yale University in correspondence regarding this interview, when he referred to Modigliani as: “my hero.”

La teoria neoclassica della crescita e della distribuzione

Abstract: The paper surveys the neoclassical theory of growth. As a preliminary, the meaning of the adjective "neoclassical" is discussed. The basic model is then sketched, and the conditions ensuring a stationary state are illustrated. The issue of the convergence to a stationary state (and that of the speed of convergence) is further considered. A discussion of "primary factors" opens the way to the "new" theory of growth, with endogenous technical progress. A number of extensions of the basic model are then recalled: two-sector and multi-sectoral models, overlapping generations models, the role of money in growth models.

Three Nobel Laureates on the State of Economics

Abstract: At the start of a new century indeed, a new millennium it seemed more than appropriate to ask three of our most distinguished Nobel Prize winners to discuss where the profession now stands. We asked Robert Solow, Kenneth Arrow, and Amartya Sen to reflect on what they and other economists have learned in the last generation and what they failed to learn, as well as in what direction the profession should be heading.

Three Nobel Laureates on the State of Economics: Interviews with Robert Solow, Kenneth Arrow, and Amartya Sen

Abstract: (2000). Three Nobel Laureates on the State of Economics. Challenge: Vol. 43, No. 1, pp. 6-31.

La teoria neoclassica della crescita e della distribuzione (Neoclassical Theory of growth and Income Distribution)

Abstract: The paper surveys the neoclassical theory of growth. As a preliminary, the meaning of the adjective "neoclassical" is discussed. The basic model is then sketched, and the conditions ensuring a stationary state are illustrated. The issue of the convergence to a stationary state (and that of the speed of convergence) is further considered. A discussion of "primary factors" opens the way to the "new" theory of growth, with endogenous technical progress. A number of extensions of the basic model are then recalled: two-sector and multi-sectoral models, overlapping generations models, the role of money in growth models. JEL Codes: O41, E25 Keywords: Distribution, Growth, Income Distribution, Income