ABSTRACT
The traditional emphasis on the accumulation of conventional inputs of labor and capital in growth theory as the primary force behind growth proved invalid for revealing complexity of modem economic growth. Human capital, technological change through innovations, knowledge growth, institutions, and cultural values, have been slowly but steady introduced into formal economic growth theory. This chapter examines traditional territories from some new perspectives and explores new trends with new concepts and analytical tool. In this chapter, we consider a two-sector economy, a good-producing sector where output is produced, and a university where additions to the stock of knowledge are made. In contrast to conventional private economic goods which are rivals Romer emphasizes that all types of knowledge are nonrivai1 Knowledge is assumed nonrival in the sense that the use of a piece of knowledge by any agent does not prevent it from being used someone else. We do not have to divide the stock of knowledge between the two sectors, and both sectors use the full stock of knowledge. An immediate implication of this public property of knowledge is that the creation and allocation of knowledge cannot be completely governed by competitive market forces. Once an economic theory - like the Solow model - was created, the marginal cost of supplying the model to an additional lecturer or researcher is zero. The rental price of the knowledge in the economic system is zero.
