Chapter 4 - Growth and Policy / Endogenous Growth Theory

What does economic growth tend to depend on in developed countries? Speak from the perspective of the endogenous growth model.

The rate of techno- logical progress. According to endogenous growth models, technological progress depends on saving, particularly investment directed toward human capital.

What are the main weaknesses of endogenous growth theory?

1. lack of clear policy implications 2. Assumptions about spillovers and externalities: Endogenous growth theory assumes that knowledge and technological progress are non-rival and non-excludable 3. Neglects natural resource constraints 4. Limited empirical evidence 5. Ignores institutional and political factors

What are the two types of convergence

Absolute convergence Conditional convergence

What is conditional convergence

Conditional convergence is predicted for economies with different rates of saving or population growth; that is, steady-state incomes will differ as predicted by the Solow growth diagram, but growth rates will eventually equalize.

What is one of the main things endogenous growth theory looks at?

How society's choices lead to technical progress. For example: In countries on the leading edge of technology, the advance of knowledge is a key determinant of growth. Invention of new technology is much less important for poorer countries, because poorer coun- tries can grow by "borrowing" technology, as well as by investing in physical and human capital.

Is the Solow growth model connected to neoclassical theory or endogenous theory?

Neoclassical Growth Theory

Difference between neoclassical growth theory and endogenous growth theory

Neoclassical growth theory assumes that technological progress is exogenous, meaning that it is determined outside of the economic model and is not influenced by economic factors. In contrast, endogenous growth theory assumes that technological progress is endogenous, meaning that it is influenced by economic factors such as investment, research and development, and human capital accumulation. Overall, while both neoclassical and endogenous growth theories seek to explain long-term economic growth, they differ in their assumptions about the sources of growth and the role of externalities.

What is absolute convergence

Neoclassical growth theory predicts absolute convergence for economies with equal rates of saving and population growth and with access to the same technology. In other words, they should all reach the same steady-state per capita income.

Model soLoW GRoWTh MoDEL Vs. EnDoGEnous GRoWTh.

See area labeled "B" in note pad.

Why doesn't the constant marginal product of capital create a situation where a single large firm dominates the economy, as traditional microeconomic reasoning suggests?

The constant marginal product of capital is a theoretical assumption in traditional microeconomic models that suggests that each additional unit of capital will produce the same amount of output as the previous unit. However, in reality, this assumption is often not valid. Overall, the assumption of constant marginal product of capital is a simplification of the real world, and there are many factors that can prevent a single large firm from dominating the economy, including competition, innovation, and regulatory constraints.

What do population control policies do to the investment requirement line?

They lower the investment requirement line.

Do international comparisons support conditional convergence theory in endogenous growth theory?

Yes. adjusting for differ- ences in saving and population growth rates, developing countries advance toward the income levels of the most industrialized countries.