Ability to Absorb Knowledge and Endogenous Economic Growth: Expansion of Romer Economic Model

Abstract

Above the solid base founded by Alfred Marshall, Robert Solow, Paul Romer, and other famous economists around the world, this article focuses on exploring new aspects of economic growth based on the Romer Economic Growth Model. By adding two new variables, the heterogeneity and the ability to absorb knowledge, into the model, which are two main conditions that allows the spillover effect of knowledge, this article realizes that such an effect is, in fact, a mutual communication between industries, in which they absorb knowledge from each other. In order to set up a new model based on the Romer Economic Growth Model, this article imports the two variables into the model, and finally achieve a new endogenous economic growth model. Theoretically, this will be a more inclusive economic growth model: Romer Economic Growth Model, Solow Growth Model, and AK Model are all special situations of this model. Mathematically, since this model emphasizes the impact of ability to absorb knowledge in the economic growth, comparing to previous economic growth models, this one will hold a stronger point in explaining endogenous economic growth.