To begin with Romer (1996) introduced concepts of neoclassical growth theory, he acknowledged importance of both, evidence and theory (or model), while explaining rapid growth of United States of America. Romer (1996) thought that any economic model without an empirical evidence is useless, as the developed model could be misleading without facts that can prove it. Whereas too much attention the data can be compared to the description of the work of an engine described by Dawkins (1986). To put it in other words, attention to the data, details, may worsen the bigger picture, as people’s mind tend to concentrate on details and lose the bigger picture.

So, Romer (1996) endorsed the idea of hierarchical reductionism and claimed that this is one of the best methods to explain the world. As it gives an opportunity to analyse the whole, as the set of interrelated parts, which has their function in the system, however each part can be  divided further into smaller part and examined separately. Then Romer (1996) explained the problem of neoclassical growth theory, as in any formulation of such technology and technological development are treated as an exogenous variables, which cannot be explained within the model. Hence he denoted that ideas are the driving force of the economy, as ideas create technologies, which influence the development of the country. Moreover Romer (1996) thought that ideas can and should be treated as a goods, as they can be traded, shared and can produce other goods. So, he used the theory of ideas as the driving force of development to explain growth of  United States of America.  Romer (1996) showed that the natural resources and population are not the main factor of growth, but national market, specialisation and new ideas encourage expansion of the industry and development of new markets. In addition to that, evolution of the market created a need in new technologies, which are impossible without investments, made United States of America a leader in technological development.

To my mind, the use of ideas in the analysis of growth of the economy is quite reasonable, however it created difficulties with the analysis as ideas cannot be measured, thus it can be used only to explain things after happening rather than to predict future.


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