Paul Romer

Affiliated Faculty, NYU Wagner; Professor of Economics, NYU Leonard N. Stern School of Business

Paul Romer

Paul Romer, an economist and policy entrepreneur, is the founding director of the NYU Stern Urbanization Project. The Urbanization Project conducts applied research on the many ways in which policymakers in the developing world can use the rapid growth of cities to create economic opportunity and undertake systemic social reform. Professor Romer is also a University Professor at New York University and Director of NYU's Marron Institute of Urban Management. Marron deepens the fundamental understanding of cities by working with civic innovators to improve urban management.

Before coming to NYU, Professor Romer taught at Stanford University's Graduate School of Business. While there, he took an entrepreneurial detour to start Aplia, an education technology company dedicated to increasing student effort and classroom engagement. To date, students have submitted more than 1 billion answers to homework problems on the Aplia website.

Prior to Stanford, Professor Romer taught in the economics departments at the University of California, Berkeley, the University of Chicago and the University of Rochester. He is a Research Associate at the National Bureau of Economic Research and a Fellow of the American Academy of Arts and Sciences. He is a non-resident scholar at both the Center for Global Development in Washington, D.C. and the Macdonald-Laurier Institute in Ottawa, Ontario. In 2002, he received the Recktenwald Prize for his work on the role of ideas in sustaining economic growth.

Professor Romer serves on the board of trustees for the Carnegie Endowment for the Advancement of Teaching. He is also a member of the board of directors for Community Solutions, a national not-for-profit dedicated to strengthening communities and ending homelessness.

Professor Romer earned a B.S. in mathematics from the University of Chicago. He earned a doctorate in economics from the University of Chicago after doing graduate work at the Massachusetts Institute of Technology and Queens University.



When will reducing trade barriers against a low wage country cause innovation to increase in high wage regions like the US or EU? We develop a model where factors of production have costs of adjustment and so are partially “trapped” in producing old goods. Trade liberalization with a low wage country reduces the profitability of old goods and so the opportunity cost of innovating falls. Interestingly, the “China shock” is more likely to induce innovation than liberalization with high wage countries. These implications are consistent with a range of recent empirical evidence on the impact of China and offers a new mechanism for positive welfare effects of trade liberalization over and above the standard benefits of specialization and market expansion. Calibrations of our model to the recent experience of the US with China suggests that there will be faster long-run growth through innovation in the US and that, in the short run, this is magnified by the trapped factor effect.



In the wake of the financial crisis, any rethinking of macroeconomics has to include an examination of the rules that govern the financial system. This examination needs to take a broad view that considers the ongoing dynamics of those rules. It will not be enough to come up with a new set of specific rules that seem to work for the moment. We need a system in which the specific rules in force at any point in time evolve to keep up with a rapidly changing world.

A diverse set of examples suggests that there are workable alternatives to the legalistic, process-oriented approach that characterizes the current financial regulatory system in the United States. These alternatives give individuals responsibility for making decisions and hold them accountable. In this sense, the choice is not really between legalistic and principlebased regulation. Instead, it is between process and responsibility

Paul Romer. The Startup Dynamic. Working Paper



Economists devote too much attention to international flows of goods and services and not enough to international flows of ideas. Traditional trade flows are an imperfect substitute for flows of the underlying ideas. The simplest textbook trade model shows that a welfare-enhancing move toward freer flows of ideas should be associated with a reduction in conventional trade. The large quantitative effect from the flow of ideas is evident in the second half of the 20th century as the life expectancies in poor and rich countries began to converge. Another example comes from China, where authorities dramatically reduced accident rates by adopting rules of civil aviation that were developed in the United States. All economists, including trade economists, would be better equipped to talk about international flows of technologies and rules if they adopted a consistent vocabulary based on the concepts of nonrivalry and excludability. An analysis of the interaction between rules and technologies may help explain important puzzles such as why private firms have successfully diffused some technologies (mobile telephony) but not others (safe municipal water.)


In 1961, Nicholas Kaldor highlighted six "stylized" facts to summarize the patterns that economists had discovered in national income accounts and to shape the growth models being developed to explain them. Redoing this exercise today shows just how much progress we have made. In contrast to Kaldor's facts, which revolved around a single state variable, physical capital, our updated facts force consideration of four far more interesting variables: ideas, institutions, population, and human capital. Dynamic models have uncovered subtle interactions among these variables, generating important insights about such big questions as: Why has growth accelerated? Why are there gains from trade?