2018 ECONOMIC NOBEL: ECONOMICS OF GROWTH, CLIMATE CHANGE AND TECHNOVATION
It will be a groundswell of adulation amidst the salvo of applause and festschiff for Williams Nordhaus and David Romer as they walk the aisle to the grand podium in the Stockholm Concert Hall to receive the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel presented by the Royal Swedish Academy of Sciences. The one-million-dollar prize investiture ceremony will be a conclave of the crème de la crème of intelligentsia from across the world.
This years’ Sveriges Riksbank award focuses on Economic Growth Models. Unlike the traditional growth models which do not factor in several contemporary factors like environmental externalities of growth as well as endogenous technological innovation factors. The works of this duo take into account these weaknesses in their Growth Model.
William Nordhaus, the former Sterling Professor of Economics at Yale will be awarded this year’s Nobel in Economic Science for his landmark contributions in the field of Climate Change and Environmental Economics. He used the DICE (Dynamic Integrated Climate Economy) and the RICE (Regional Integrated Climate Economy) models, as a set of integrated assessment models, while working with the Solow Growth model. Working with the Neoclassical Solow Growth Theory, It treated GHGs as a negative natural capital and emission reduction as investment that reduces the negative natural capital. This is further regionalized in the RICE model by integrating the specific regional variables in the DICE model. Both the DICE and RICE models have received widespread acceptance. It is now being used by Environmental Protection Agencies for estimating social cost of carbon.
Given the recent outcry for energy sector reform in Nigeria, the issues raised by Nordhaus in his model such as carbon tax, social cost of carbon and investment in emission reduction should be factor into our long term energy sector reform bills.
For Paul Romer, the Colorado-born academic economic Professor, who recently resign his position as a Chief Economist and Senior Vice President of the World Bank, he will be awarded the prize base on his pioneering works on the endogenous growth model. In his model, he broadens the definition of capital to include both the human capital or the knowledge base that have a positive externality on the economy. His model was a clean break from earlier approach that treated technology in growth model as completely exogenous. According to Paul, “In models with exogenous technical change and exogenous population growth, it never really mattered what the government did”. The new endogenous growth theory, treats knowledge or technical advances as a non-rivalrous good, yielding increasing return to scale to all factors of production. His works have been used to understand the patterns of economic growth throughout the world. Human capital, intellectual property rights and social factors of innovation are now taking center stage in debates on how to stimulate economic growth.
As the global community honors these outstanding duo, it behooves governments in developing world to integrate the variables thrown up by their models in concocting their policies as they grapple with the burden of development.
Written by John Aiyede
References
· Mishra,Satyabrata: The New Theory of Economic Growth :Endogenous Growth Model” Journal of business Management Invention, September, 2016
· Editors Pick Paul Romer and William Nordhaus win the Economic Nobel, The Economics October, 2018
· Morley, James Economic Theories that have Changed Us: Endogenous Growth, June, 2015
· William Nordhaus and Paul Sztorc DICE 2013R: Introduction and User’s Manual October, 2013