Paul M. Romer's paper "Increasing Returns and Long-Run Growth" presents a model of long-run growth where knowledge is treated as an input with increasing marginal productivity. Unlike traditional models based on diminishing returns, this model allows for sustained growth, with growth rates potentially increasing over time. It highlights that knowledge accumulation, driven by profit-maximizing agents, can lead to persistent growth differences between countries. The model incorporates externalities, increasing returns in production, and diminishing returns in research, leading to a competitive equilibrium where knowledge grows without bound. The paper argues that this model better explains long-run growth trends, as evidenced by historical data showing increasing productivity growth rates. It also addresses the limitations of traditional models, emphasizing the role of knowledge as a non-rivalrous, public good. The model is analyzed through both two-period and infinite-horizon frameworks, demonstrating how knowledge accumulation can lead to sustained growth, even in the absence of government intervention. The paper concludes that the model provides a more accurate explanation of long-run growth dynamics compared to traditional models with diminishing returns.Paul M. Romer's paper "Increasing Returns and Long-Run Growth" presents a model of long-run growth where knowledge is treated as an input with increasing marginal productivity. Unlike traditional models based on diminishing returns, this model allows for sustained growth, with growth rates potentially increasing over time. It highlights that knowledge accumulation, driven by profit-maximizing agents, can lead to persistent growth differences between countries. The model incorporates externalities, increasing returns in production, and diminishing returns in research, leading to a competitive equilibrium where knowledge grows without bound. The paper argues that this model better explains long-run growth trends, as evidenced by historical data showing increasing productivity growth rates. It also addresses the limitations of traditional models, emphasizing the role of knowledge as a non-rivalrous, public good. The model is analyzed through both two-period and infinite-horizon frameworks, demonstrating how knowledge accumulation can lead to sustained growth, even in the absence of government intervention. The paper concludes that the model provides a more accurate explanation of long-run growth dynamics compared to traditional models with diminishing returns.