Expanding the Domain of Economics to Include Knowledge and Nature for Welfare of the Forthcoming Generations– A Review of Economic Ideas of Paul M. Romer and William D. Nordhaus

Macro economic analysis today is focusing beyond short-run perspectives of the economy - growth rate, optimum savings and business cycles - on the long-run perspective of economic growth which is concerned with human welfare of the current as well as the coming generations across the globe. Paul M. Romer and William D. Nordhaus have been awarded the Nobel Prize in Economics in 2018 for expanding the domain of growth economics by including new variables–knowledge and climate change. Romer studied the ‗Positive Externalities‘ of economy i.e. ‗knowledge spillovers of endogenous technological change‘ and the role of new ideas in long run economic growth. Nordhaus, on the other hand, highlighted ‗Negative Externalities‘ - greenhouse-gas emissions and carbon concentration - and their impact on global climate and presented the ‗Integrated Assessment Models‘. Both laureates have based their study on Robert Solow‘s neoclassical growth theory for which he was awarded the 1987 Economics Prize. Beginning from the Solow model they attempt to overcome its shortcoming - an exogenous steady path of economic growth - in a different approach and reach conclusions which have a common string. Romer has argued that ‗new ideas‘ promote economic growth because they have the potential to cause positive spillover or a positive externality. Nordhaus has added new dimensions to the Solow model by integrating into it the fundamental challenges the global economy was facing due to climate changes. Using Integrated Assessment Models (IAMs), and Dynamic Integrated Climate Economy (DICE) model he assesses carbon emissions and atmospheric carbon concentration level and its impact on economic growth. Romer's and Nordhaus's research opened up areas of further research on technological change and the climate-economy. This paper briefly outlines their contributions to growth economics.