This history has many elements in common with other stories about the development of economics. The story starts with the emergence of new data. These present anomalies that lead to new theoretical models, some of which differ markedly from previous, well-accepted models. Then a more conservative interpretation emerges that accommodates the new evidence and preserves much of the structure of the old body of theory. In the end, we have refined the set of alternatives somewhat, but seem to be left in about the same position where we started, with too many theories that are consistent with the same small number of facts.
But economists who accept this interpretation come to the conclusion that we do not have enough data only because they restrict attention to the kind of
statistical evidence illustrated in Figures 1 and 2. They fail to take account of all the other kinds of evidence that are available. My original work on growth (Romer, 1983; 1986) was motivated primarily by the observation that in the broad sweep of history, classical economists like Malthus and Ricardo came to conclusions that were completely wrong about prospects for growth. Over time, growth rates have been increasing, not de~reasing.~ Lucas (1 988) emphasized the fact that international patterns of migration and wage differentials are very difficult to reconcile with a neoclassical model. If the same technology were available in all countries, human capital would not move from places where it is scarce to places where it is abundant and the same worker would not earn a
higher wage after moving from the Philippines to the United States.
The main message of this paper is that the convergence controversy captures only part of what endogenous growth has been all about. It may encompass a large fraction of the recently published papers, but it nevertheless represents a digression from the main story behind endogenous growth theory. The story told about the convergence controversy also tends to reinforce a message that I think is seriously misleading-that data are the only scarce resource in economic analysis.
Version #2: The Passing of Perfect Competition
The second version of the origins of endogenous growth starts from the observation that we had enough evidence to reject all the available growth models throughout the 1950s, 1960s, and 1970s. What we lacked were good aggregate-level models. This version of the origins of endogenous growth is therefore concerned with the painfully slow progress we have made in con- structing formal economic models at the aggregate level. It suggests that progress in economics does not come merely from the mechanical application of hypothesis tests to data sets. There is a creative act associated with the construction of new models that is also crucial to the process.