What is an endogenous growth theory?

Endogenic growth theory is a type of theory developed primarily by economist Paul Romer and his doctoral advisor at the University of Chicago, Robert E. Lucas. This is a reaction to criticism of neoclassical economic growth models, which assumed that the technological change was exogenously intended, leading to a pessimistic conclusion that government and market policy could do nothing to increase economic growth in the long run. The theory of endogenous growth suggests that technological changes are a reaction to economic incentives on the market that can be created and/or influenced by government or private institutions. If the technological change was truly exogenous and freely available to everyone, then the only way that rich countries should have such a dramatic standard of living is if the poor countries have significantly smaller capital and a huge rate of return on additional investments. If this was the case, there should be massive capital flows from rich countries to poor countries and equalizing the standard of living, but in SKThere is no escape.

In the theory of endogenous growth, the technological change of the function of the production of ideas is. New ideas lead to new and better goods, as well as better manufacturing techniques and better older goods. Thus, the technological change can be increased by providing monopoly force through patents and copyrights to accelerate the tempo of innovation.

The second way to increase technological changes is to invest in human capital, which is the sum of all human knowledge of the nation. Through education, training and other investments in human capital, the country can increase the production of workers increases economic growth. The theory of endogenous growth also predicts that spilling from investment in products and knowledge with added value will be in itself in the form of technological progress and will increase growth.

There are several consequences of endogenous growth theory. First of all is the conclusionthat politicians and institutions matter and may affect growth. Rather than countries that have to wait for exogenous technological advances, or is limited to a short -term increase in growth, which results from an increase in the policy induced by the level of savings, endogenous growth theory suggests that government and private sector policy may affect long -term growth.

bad country with small human capital cannot be rich easily by acquiring more physical capital, so investing in human knowledge through education and training programs is the key to achieving growth. Similarly, government policies that increase the Invention for innovation can also lead to a higher level of growth. These policies may include things such as subsidies for research and development and strengthening intellectual property protection.