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Decomposing U.S. Regional Incomes: A Reply

  • Sukkoo Kim (a1)

In recent years there has been a resurgence of interest in the phenomenon of economic growth. The interest was sparked by the introduction of new models by Paul Romer and Robert Lucas. The neoclassical Solow growth model, despite its influence over the years, has a fundamental flaw: growth is determined exogenously. The new models by Romer and Lucas solve for the growth rate of the economy endogenously. In these models, due to spillovers in capital or in human capital, growth can go on indefinitely. In a later work, Romer argued that increasing returns are necessary elements in models of technological innovations, which in turn form the foundation for endogenous growth models. The theoretical innovations in modeling growth stimulated a significant body of empirical work.

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