Endogenous growth theory

In economics, endogenous growth theory was developed in the 1980s as a response to criticism of the neo-classical growth model.

In neoclassical growth models, the long-run rate of growth is exogenously determined. In other words, it is determined outside of the model, generally by an assumed rate of technological progress and an assumed rate of labor force growth.

Endogenous growth theory tries to overcome this shortcoming by endogenizing the rate of technological progress. Several competing models have been developed by various authors. Endogenous growth theories usually rely on virtuous cycles. Crucial importance is usually given to the "production" of new technologies and human capital.

In contrast to the older neoclassical growth theory, endogenous growth theory argues that policy measures can have an impact on the long-run growth rate of an economy. Subsidies on research and development or education are generally thought to increase the growth rate.

External link

• Beyond Classical and Keynesian Macroeconomic Policy