Technology Innovation, Climate Change, and the Extensions and Applications of Economic Growth Theory: A Review of Main Contributions by 2018 Nobel Economics Laureates

Li Baoliang, Guo Qiyou

Foreign Economics & Management Vol. 40, Issue 11, pp. 144 - 154 (2018)  DOI:10.16538/j.cnki.fem.2018.11.011

Summary

The 2018 Nobel Prize in Economics was awarded jointly to two American economists Paul M. Romer and William D. Nordhaus for their respective contributions to integrating technological innovations and climate change into long-run macroeconomic analysis. Specifically, Romer demonstrated that technological innovations are created by purposeful activities in market economy, thus developing a theory of endogenous economic growth. Nordhaus demonstrated that climate change not only acts as a constraint on human activity, but also as something greatly influenced by economic activity, and provided tools to investigate the interaction between climate change and economic growth. This paper firstly makes a brief review of Solow’s neo-classical economic growth model on which Romer’s and Nordhaus’ contributions built on, then discusses the motivations, main ideas and implications of their contributions, emphasizing how they solved the problems when integrating technological innovations and climate change into economic growth theory, and highlighting how these contributions shape the relatively complete logical system of the theory of economic growth in Western economics which not only contains the possibilities of sustained economic growth, but also contains the possibilities of negative economic growth and even sudden collapse. Their contributions to economic growth theory deepen our understanding of sustained economic growth, and their technological innovation policies and environmental assessment methods provide a reference for developing countries, including China, on how to change the momentum of economic growth and formulate policies and measures for sustainable development. This paper finally discusses the following five implications. First, we should be cautious about the reality and prospects of economic growth. Second, the catching up of developing countries should focus on the construction of innovation policy environment. Third, increasing the level of foreign trade and the degree of opening up is an important way to narrow the technology and income gap with developed countries. Fourth, all countries should work together to tackle climate change. Fifth, China should take technological innovations to lead the new driving force for green development.

Keywords

Paul M. Romer; William D. Nordhaus; economic growth; technology innovation; endogenous growth model; climate change; integrated assessment models