What Is an Endogenous Growth Theory?

The Theory of Endogenous Growth The theory of endogenous growth is a branch of Western macroeconomic theory that originated in the mid-1980s. Its core idea is that the economy can rely on external forces to promote sustainable growth. Endogenous technology Progress is the decisive factor for sustained economic growth. Emphasizes imperfect competition and increasing returns.

Endogenous growth theory

The Theory of Endogenous Growth The theory of endogenous growth is a western originating in the mid-1980s

The Theory of Endogenous Growth The theory of endogenous growth is a western originating in the mid-1980s

Growth theorists examine long-term growth decisions under the assumption of perfect competition. The endogenous growth model contains two specific research ideas. The first is

from

With the development of theory, many economists have realized that the biggest problem facing the endogenous growth theory is how to conduct empirical analysis. From the research point of view, this empirical research is actually carried out along two technical lines: one is to conduct research between countries to find evidence of endogenous growth. The other is to use a country's long-term data to study the economic growth factors of a country; or to discuss a specific factor, such as opening up, taxation, equality, financial progress, education expenditure, innovation, etc., on the role of economic growth.

Judging from the progress of the endogenous growth theory, it is still in a period of active development. Although there is no epoch-making innovation, many achievements have been made in the combination of modern methods and classic theories. Development) The establishment of quantitative models of the relationship between investment and economic growth, the re-exploration of Schumpeter's creative destruction. In addition, in terms of empirical analysis, although there are still a large number of problems that have not yet been resolved, some achievements have been made in estimation methods, adjustment of variables, adjustment of data, and quantification of qualitative factors. From the perspective of future development, the development of endogenous growth theory will proceed in two directions: one is to follow the path of non-linear dynamic models to more accurately simulate the real economic world with more complex mathematical models; the other is the study of quantitative inspection .

After entering the 1990s, economists have continued to study the theory of endogenous growth and made new progress.

These advances are mainly reflected in the refinement of the original endogenous growth model. For example, since Romer (1986) proposed externalities, economists have conducted more in-depth research on the endogenous origins of economic growth. For example, Romer (1990) regards technological progress as an enlargement of an intermediate product, and assumes that this enlargement comes from individual optimization decisions. Young (1991) proposed a limited dry school model in which dry school is limited, so growth may be constrained by invention. Young (1993) aimed at the substitution and complementarity of intermediate products, and proposed an endogenous growth model with the simultaneous expansion of the number of intermediate products and final products. Oritigueira (2000) introduced leisure to the human capital-driven endogenous growth model. Due to the introduction of leisure, the utility function is no longer monotonous, which leads to the existence of multiple equilibriums and the growth path is no longer stable. Basu and Weil (1999) proposed a growth model that relates technology to a specific K / L ratio. In this model, growth is driven by two aspects, on the one hand, by the secondary school (K / L ratio). Specific), on the other hand, is driven by technological progress and capital accumulation (technical progress requires a changed K / L ratio). Jones (1995, 1999) and Dinopoulos et al. (1999), Young (1998), and Segerstrom (1998) conducted in-depth discussions on the effects of scale in economic growth models. They believed that Romer / Aghion and Howitt / Lucas et al. The growth effects of all models imply scale effects, but there is virtually no empirical support for such scale effects. However, if the scale effects are removed from the above models, the long-term nature of the model is fundamentally changed, and growth may change from endogenous to Exogenous. Therefore, they are committed to building a growth model without scale effects. Chol-Won Li (2000), by establishing a research and development department with two new research and development departments (that is, a research and development department with improved quality of new products and a research and development model with increased intermediate product varieties) Thinking. In his model, endogenous growth (that is, growth without population growth) requires severe conditions, and semi-endogenous growth is a more reasonable explanation. In some recent literature, such as a special issue on the relationship between endogenous growth models and nonlinearity published by the Journal of Economic Theory (2001), economists have started to discuss the chaotic path or endogenous growth that endogenous growth may cause. The bifurcation point in the growth process has introduced the study of economic growth into a non-linear direction; in addition, some economists have discussed the uncertainty in growth, especially when there are multiple equilibrium points in the growth path (such as Kuzuo Mino (2001)).

Revival of neo-Schumpeterism

Another important development of the endogenous growth theory in the 1990s was the revival of neo-Schumpeterism. Since Aghion and Howitt proposed the role of creative destruction in the growth process in 1992, in their book "Endogenous Growth Theory" published in 1998, they have spent a lot of time describing Schumpeter's method and technical progress. Detailed analysis of the creative destructive effects. In their model, Aghion and Howitt introduced the concept that new technology made the original technology obsolete, so that technological progress became a creative process of destruction. Another feature of neo-Schumpeterism is related to the micro-mechanism of technological progress. In the literature on growth theory in the 1990s, many models [12] developed the relationship between market structure and technological progress (eg, Aghion and Howitt (1998)). However, as far as the author is concerned, how to establish a model of endogenous technological progress in the market structure is still worth the efforts of economists [13].

The idea of division of labor to drive economic growth, represented by Yang Xiaokai, modeled division of labor and growth due to the introduction of corner solutions, and it has gradually been recognized by mainstream economists. Research based on division of labor has not yet become mainstream in research on economic growth. The relationship between the division of labor and economic growth proposed and emphasized by Smith for the first time [14] was carried forward by A. Young (1928), but it did not regain the attention of economists until the 1980s. For the concept of division of labor and its relationship with growth, economists 'research is carried out along two lines of thought: the first line of thought is based on the deepening of the degree of circuitous production, which is carried out from the perspective of manufacturers' optimal decisions Studies, such as those by A. Young, Romer (1987), Grossman (1991, 1992), etc .; the second idea is based on the division of labor as the result of the optimal selection of agents in the economy, and reflects the individual's specialty LEVEL. G. Beker (1992), Yang Xiaokai (1991, 1992, 1993) and others have studied this line of thought. The analysis along the first line of thought has the main problem of ignoring the generation and evolution of division of labor. Although Romer (1987) used the number of intermediate products as the degree of circuitous production, and assumed the incomplete substitution and incomplete complementarity of intermediate products (in fact, the production function in the model used by Romer is a D-S type Production function) to solve a general equilibrium solution for the degree of circuitous production. However, the analysis did not discuss the increase in transaction costs caused by the increase in the degree of circuitous production, and its model is not of great significance to reality. Yang Xiaokai's contribution is that he recognizes that the Romer model ignores the shortcomings of transaction costs, links division of labor to transaction costs, and uses transaction costs to explain the evolution of division of labor. However, from his published papers and monographs (such as Yang Xiaokai (1998, 2000, 2001)), an important issue in Yang Xiaokai's system is the concept of evolution. At Yang, division of labor is an evolutionary process, and it is transaction costs that determine the evolution of division of labor. However, the problems in the definition and measurement of transaction costs have limited the application of Yang's model, and, even more deadly, in Yang, the rationality of the AGENT is problematic, that is, at a given transaction cost, Infinite rational reasoning ability, but know nothing about anticipating the evolution of transaction costs [15].

With the progress of the theory, many economists have realized that the biggest problem facing the endogenous growth theory is how to conduct empirical analysis. Whether it is research along the research line of Romer's independent research and development department, or research along the research line of human capital spillovers of Lucas, how to conduct empirical analysis.

From the research point of view, this empirical study is actually carried out along two technical lines, one is to conduct research between countries to find evidence of endogenous growth, and the other is to study long-term data along a country. Economic growth factors; or discuss specific factors such as opening up, taxation, equality, financial progress, long cycles, education spending, innovation, etc., on the role of economic growth.

Most of the research carried out along the first technical route was conducted in the famous Barro-type regressions, that is, using the growth rate of a country's per capita income as the dependent variable, and the per capita income of a country As an independent variable, a regression test is conducted on whether national income growth rates are converging. For example, Barro (1995, 1996) tested the convergence trend in 92 countries, US states, and Japanese counties; Kremer (1993) research on the economic growth process throughout the world shows that economic growth and population size exist. Positive correlation, which empirically supports the theory of endogenous growth; Michael J. Boskin (2001) conducted empirical research on post-war economic growth. He believes that technological progress should be reflected in the adjustment of human capital and physical capital. Therefore, he concluded that the contribution rate of technological progress to GDP growth was more than 50%, and the visible capital was more than 25%, and the decline in growth rate after the 1970s should be attributed to pure material capital-adjusted technological progress; Greenwood Et al. (1998, NBER, W6647) calculated the economic growth of the United States after World War II. They believed that there was a strong correlation between US growth and technological progress. At the same time, they believed that in the process of economic growth, human capital and technological progress There is strong complementarity between capital and capital improvement, and there is some evidence of endogenous growth; the problems faced by Aghion and Howitt (1998) The question is how to find data that can represent the differences between countries, such as the difference in growth rates between one country and another, which may be caused by the cultural traditions and political and economic systems between the two countries. [16] Whether the GDP gap between countries is as large as the exchange rate shows is worth exploring. However, although there are methods such as PPP for GDP adjustment, there is no method that has been widely accepted so far. More importantly, the research along the first technical route did not find much empirical evidence to support the theory of endogenous growth. For example, DeLong and Summers (1991) research on the facts of economic growth in the United States shows The growth of investment is an important factor in economic growth. Research conducted by Mankiw, Romer, Weil (1992) (known as the MRW test) shows that the Solow-Swan model with diminishing returns and exogenous technological progress can explain the economic growth rate, and their work also shows The existence of conditional convergence exists; Young (1995) measured the growth rate of total factor productivity in East Asian emerging industrial countries using a translog production function. Young's research shows that East Asian emerging industrial countries, such as Hong Kong, Singapore, China's Taiwan and South Korea, during the period of rapid economic growth, the growth rate of their TFP is very low, which is not enough to explain that their growth rate exceeds that of other developing countries. Increase in education level, education level per capita, etc .; Jones (1995) studied the effects of post-World War II R & D on productivity growth in OECD countries. He found that the rapid increase in R & D expenditure in OECD countries after the war did not increase productivity Substantial role. Dinopous and Thompos (1999) tested the scale effect in economic growth and concluded that there is no empirical fact to support the scale effect. All this shows that the endogenous growth theory is not satisfactory in terms of empirical facts. As pointed out by Temple (1999), the empirical study of growth has largely supported the neoclassical growth theory of the 1950s type. . Sala-I-Martin (2001) also pointed out that neoclassical growth theory can explain convergence more than AK model.

Research conducted along the second technical route has yielded extensive results, although there is still a lack of consensus among these results on the effects of individual factors on economic growth. Abhijit.V. Banerjee, "Inequality and Growth" (NBER WORKING PAPER NO.7793), Douglas Holtz-Eakin, etc. "Intergenerational Conflicts, Human Capital Accumulation and Economic Growth" (NBER WORKING PAPER NO.7762), Paul Beaudry and David Green (2001), Population Growth, Technology Application, and Economic Output, S.EDWARDS (1997), Openness, Productivity, and Growth [Using data from 93 countries, studies the relationship between openness and TFP growth The robustness of the method has reached a positive conclusion. [17], Engen etc. (1996), "Taxation and Economic Growth" [This article uses historical data analysis methods, country analysis methods, microanalysis methods, etc. The empirical research on the relationship of growth has drawn the conclusion that the tax revenue is approximately neutral in the short term, and the cumulative results are significant in the long term], etc. The factors that affect economic growth are analyzed in detail. On the whole, as pointed out by Ben Fine (2000), many empirical analysis of endogenous growth theory is still similar to the old TFP analysis method, except that input factors are explained more broadly to include Factors that generate growth, so that, on a microscopic basis, the growth generated in the context of incomplete markets can be characterized more deeply [18].

Another direction of the development of the new economic growth theory is to study the interactive relationship between economic growth and structural changes. For example, John Laitner (2000) discusses the relationship between structural changes and economic growth. He believes that in a country's industrialization process, the savings rate rises endogenously, so the economic growth rate changes accordingly. John Laitner's view is, in fact, an important extension of the two-sector (or multisector) growth model that emerged after the 1990s.

Judging from the progress of the endogenous growth theory in the 1990s, the endogenous growth theory is still in a period of active development, such as the establishment of a quantitative model of the relationship between R & D investment and economic growth, and the re-emergence of Schumpeter s creative destruction. Explore etc. In addition, in terms of empirical analysis, as pointed out by Ben Fine (2000), empirical research on growth theory faces the following three aspects: the independence of variables (the test of the model assumes the independence of the data, but in practice, The variables affect each other and the independence cannot be guaranteed); the data is based on the selectivity of the model, this choice ignores the growth process and focuses on the results of the growth; the randomness of the data matches the randomness of the variables. Random variables are used, but the actual data is the consequence of various random shocks. However, in the 1990s, in the estimation method (such as a breakthrough for Barro-type regression), the adjustment of variables (such as long-term data for multiple countries, see Summers-Heston (1988/1991/1995), and for the adjustment of educational data, see Barro and Lee (1998)), adjustment of data (adjustment of economic growth rates of various countries), quantification of qualitative factors (such as the study of the relationship between democracy and growth), etc. have made certain achievements. From the perspective of future development, the development of endogenous growth theory will proceed in two directions. The first direction is to follow the path of nonlinear dynamic models to more accurately simulate the real economic world with more complex mathematical models; the other direction It is the study of quantitative inspection, including the introduction of more variables, adjustment of variables to be realistic, quantification of qualitative factors, etc.