Question6 The growth rate of per capita GDP in the Romer model depends on the number of workers engaged in research. However, the country of Luxemburg, which has far fewer researchers than the U.S., grows at a rate faster than the U.S. and has a higher per capita GDP. How can the Romer model explain this difference in growth rates? This difference in growth rates is not consistent with the Romer model. The model fails to predict the facts. Due to the nonrivalry of ideas, the economy of Luxemburg grows because the model is based on ideas created throughout the world, not just within that country. The productivity of researchers or the share of workers engaged in research must be smaller in Luxemburg than in the U.S. Luxemburg is richer so according to the principle of transition dynamics, its economy should grow faster. ResetMaximum marks: 1 Flag question undefined

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BlackTom AI · Accepted Answer

Let’s unpack the question by listing all answer options and then evaluating each one in turn.
Option 1: 'This difference in growth rates is not consistent with the Romer model.' This claim asserts a mismatch between Luxemburg’s growth and the Romer framework. However, the Romer model emphasizes ideas are nonrival and can spill over internationally; connectivity and knowledge externalities can allow a small country with global ideas access to high growth. Saying it’s entirely inconsistent ignores the model’s emphasis on idea diffusion and global knowledge stock.
Option 2: 'The model fails to predict the facts.' This is a broad critique suggesting an outright failure. Yet Romer-type models typically explain persistent growth via idea accumulation and nonrivalry, which can account for ongoing growth even when domestic research inputs are smaller. Without deeper specification, saying it fails is too strong and not necessarily accurate.
Option 3: 'Due to the nonrivalry of ideas, the economy of Luxemburg grows because the model is based on ideas created throughout the world, not just within that country.' This aligns with the core Romer insight: ideas are nonrival and can be used by many agents; even a small country can benefit from a global stock of ideas, not solely domestic research. If Luxemburg leverages international knowledge, per-capita growth can exceed a country with more researchers but less access to global ideas, making the explanation consistent with Romer’s emphasis on externalities and global knowledge spillovers.
Option 4: 'The productivity of researchers or the share of workers engaged in research must be smaller in Luxemburg than in the U.S.' While this could be part of a differential explanation, the Romer model doesn’t rely solely on the size of the research workforce in isolation; it hinges on the accumulation of ideas and their nonrival nature. Simply asserting a smaller R&D productivity or share doesn’t explain why Luxemburg grows faster if it doesn’t connect to how ideas contribute to growth beyond domestic boundaries.
Option 5: 'Luxemburg is richer so according to the principle of transition dynamics, its economy should grow faster.' Transition dynamics typically concern convergence: poorer economies growing faster as they catch up given similar institutions and technology. This statement conflates wealth with growth dynamics and does not directly address the Romer mechanism of idea formation and nonrivalry. It’s not the most precise explanation within the Romer framework.
In summary, option 3 uniquely invokes the Romer model’s key feature—nonrival ideas and global knowledge spillovers—to explain how Luxemburg could achieve faster growth despite fewer researchers, by leveraging ideas produced elsewhere and shared across borders. The other options either deny the model’s explanatory power, attribute growth to factors not central to Romer’s mechanism, or rely on different growth notions that don’t directly map to the model’s core ideas about knowledge and nonrivalry.

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