How does globalization affect economic
growth? The modern literature on endogenous
growth provides tools and models that are useful
for elucidating some of the mechanisms link-
ing international integration with long-run eco-
nomic performance.
Up until the mid-1980s, studies of growth
focused primarily on the accumulation of phys-
ical capital. But, capital accumulation at a rate
faster than the rate of population growth is likely
to meet diminishing returns that can drive the
marginal product of capital below a threshold
at which the incentives for ongoing investment
vanish. This observation led Romer (1990);
Lucas (1988); Aghion and Howitt (1992);
Grossman and Helpman (1991a); and others
to focus instead on the accumulation of knowl-
edge, be it embodied in textbooks and firms as
“technology” or in people as “human capital.”
Knowledge is different from physical capital
inasmuch as it is often non-rivalrous; its use by
one person or firm in some applications does
not preclude its simultaneous or subsequent use
by others. The non-rivalrous nature of knowl-
edge suggests increasing returns when output
is related to all tangible and intangible inputs,
which eliminates the inevitability of diminish-
ing returns to the accumulation of some inputs
relative to others.
The new models of knowledge accumula-
tion highlight several potential links between
international integration and growth. Research
has focused on how the international exchange
of goods and ideas affects the incentives for
knowledge acquisition and on the efficacy o