Editing Kenneth Arrow (section)

===Endogenous-growth theory===
{{see also|AK model}}
Arrow was one of the precursors of [[endogenous growth theory]], which seeks to explain the source of technical change, which is a key driver of economic growth. Until this theory came to prominence, technical change was assumed to occur [[exogenous variable|exogenously]]—that is, it was assumed to occur outside economic activities, and was outside (exogenous) to common economic models. At the same time there was no economic explanation for ''why'' it occurred. Endogenous-growth theory provided standard economic reasons for why firms innovate, leading economists to think of innovation and technical change as determined by economic actors, that is [[Endogeneity (econometrics)|endogenously]] to economic activities, and thus belong inside the model. Endogenous growth theory started with [[Paul Romer]]'s 1986 paper,<ref>{{cite journal |first=Paul M. |last=Romer |title=Increasing Returns and Long-Run Growth |journal=[[Journal of Political Economy]] |volume=94 |issue=5 |year=1986 |pages=1002–37 |jstor=1833190 |doi=10.1086/261420|s2cid=6818002 |url=http://www.dklevine.com/archive/refs42232.pdf }}</ref> borrowing from Arrow's 1962 "[[learning-by-doing (economics)|learning-by-doing]]" model which introduced a mechanism to eliminate [[diminishing returns]] in aggregate output.<ref name="Maskin"/><ref>{{cite journal |first=Kenneth J. |last=Arrow |title=The Economic Implications of Learning by Doing |journal=[[The Review of Economic Studies]] |volume=29 |issue=3 |year=1962 |pages=155–73 |jstor=2295952 |doi=10.2307/2295952 |s2cid=155029478 }}</ref> A literature on this theory has developed subsequently to Arrow's work.<ref>{{cite book |first1=Robert J. |last1=Barro |first2=Xavier |last2=Sala-i-Martin |title=Economic Growth |location=Cambridge |publisher=MIT Press |edition=2nd |year=2004 |isbn=0-262-02553-1 |pages=212–20 |url=https://books.google.com/books?id=jD3ASoSQJ-AC&pg=PA212 }}</ref>