What Is Exogenous Growth?

The new growth theory is a branch of economics that focuses on solving an important and confusing topic in economic science: the root cause of growth. Its appearance marks the fusion of neo-classical economic growth theory with economic development theory. The distinctive feature of this integration is that it emphasizes that economic growth is not the result of external forces (such as exogenous technological changes), but the product of the internal forces of the economic system (such as endogenous technological changes). It attaches importance to knowledge spillovers, human capital investment, research And new research on development, increasing income, division of labor and specialization, learning by doing, open economy, and monopoly, re-explaining the wide-ranging transnational differences in economic growth and per capita income, providing a long-term economic growth ratio A new picture.

New growth theory

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The new growth theory is a branch of economics that focuses on solving an important and confusing topic in economic science: the root cause of growth. Its appearance marks the fusion of neo-classical economic growth theory with economic development theory. The distinctive feature of this integration is that it emphasizes that economic growth is not the result of external forces (such as exogenous technological changes), but the product of the internal forces of the economic system (such as endogenous technological changes). It attaches importance to knowledge spillovers, human capital investment, research And new research on development, increasing income, division of labor and specialization, learning by doing, open economy, and monopoly, re-explaining the wide-ranging transnational differences in economic growth and per capita income, providing a long-term economic growth ratio A new picture.
For nearly half a century, modern economic growth theory has experienced an evolutionary path from exogenous growth to endogenous growth. In the mid-1980s, a group of economists represented by Romer.P, Lucas, and others, on the basis of rethinking the neoclassical growth theory, proposed a The group focused on "endogenous technological changes as the core thesis, explored the possible prospects of long-term growth, re-awakened people's interest in economic growth theories and issues, and set off a trend of" New Growth Theory "research. .
Since its emergence in the 1980s, this theory has quickly become the focus of theoretical attention and has had an important impact on world economic growth, especially on the economies of developing countries.
The most important breakthrough of the new growth theory is to introduce endogenous technological change factors such as knowledge and human capital into the economic growth model, and put forward the assumption of increasing factor income. As a result, the rate of return on capital can be unchanged or increased, and the per capita output can increase infinitely. And growth can increase independently in the long run. The introduction of technology endogenization shows that technology is no longer an exogenous thing that humans can't control, but a product of human investment for their own benefit. The new growth theory has the following five research ideas:
l. Endogenous growth ideas for knowledge spillovers and learning by doing
Represented by Romer.P, Lueas.R, Stokey.N and Young, Alwyn and others, emphasizing that knowledge and human capital are "engines of growth". Because knowledge and human resources are a factor of production and investment: on the one hand, it is a by-product of investment, that is, the increase in the capital of each manufacturer will lead to a corresponding increase in its knowledge stock; The accumulation of new capital by one firm contributes to the capital productivity of other firms. This means that each manufacturer's knowledge level is proportional to the total investment accumulated by the industry as it learns from the industry. Through the effect of this knowledge spillover, the marginal output rate of capital will be persistently higher than the discount rate, resulting in increasing returns to production. That is to say, the productivity of any given manufacturer is an increasing function of the total investment accumulated by the entire industry. As investment and production progress, new knowledge will be discovered and incremental returns will be formed from it. Therefore, growth can be sustained through the continuous accumulation of inputs (knowledge and human capital) that generate positive external effects.
2. Growth ideas for endogenous technological change
Represented by Romer.P, Helpman.E, and Howitt.P, it is emphasized that development research is the product of economic stimulus, that is, the knowledge obtained by the conscious development research institute is the source of economic growth. A large number of innovations and inventions are the products of manufacturers' conscious investment in pursuit of maximizing profits. Because the knowledge generated by this research and development must be somewhat exclusive, developers have a certain degree of market power. It can be seen that innovation requires the existence of monopoly profits. Therefore, this economy does not have to be completely competitive, and it needs some kind of monopoly power. However, the inventor's monopoly position is of a temporary nature, and when a new profile emerges, it will be replaced and lose its monopoly profit. It is this demand for monopoly profits, and the temporary nature of monopoly profits, that continue to innovate, and as a result, the economy enters sustained long-term growth.
3. Endogenous growth ideas for linear technology
Take Rebdo.S, Barm.R and others as their representatives. Its salient feature is the linear technology of production function (or convex technology eonvextechnology), and the output is a function of capital stock. Different from the neoclassical model, the capital here is the capital in a broad sense, which includes not only material capital but also human capital, which is the composite of the two. They are not completely replaced in production, so although each investment has a diminishing return, the two types of capital together have a constant return on scale. Therefore, as the capital stock increases, the output increases proportionally, resulting in the possibility of long-term growth. Another feature of this research idea is the analysis of government policies. It is proposed that government services are the same productive expenditures as private inputs. "Catalyst of growth", government activity is completely endogenous. At the same time, the effect of government policythe growth effect or the level effectdepends on the matching of various policies, which is complex, and therefore the assessment of policy effects must be look at everything
4. Endogenous growth ideas in an open economy
Represented by Romer.P, Grossman.G, Helpman.E, Krugman.RP and others, they were inspired by the "new trade theory" that emerged in the early 1980s to expand the model of endogenous innovation to international goods, capital, Thought flow: This study emphasizes that government trade policy has an impact on the long-term growth of the world economy, that is, the effect of government policy on the technology investment structure will cause corresponding changes in the growth situation of the world economy. The role of border learning, international trade can promote the economic growth of developed and developing countries, and the role of accidental major technological changes may lead to "frog leap" growth in less advanced countries and achieve catch-up.
5. Endogenous growth ideas for specialization and division of labor
Baumgardner.J, borland.J, Yang Xiaokai, and others are the representatives. They rethought Adam Smith's theory of specialization and division of labor, and proposed that the division of labor is not only affected by the market scope as emphasized by Adam Smith. Restrictions are mainly limited by the coordination cost and the amount of general knowledge that can be obtained, and the expansion of division of labor interacts with the accumulation of knowledge. If the relative difference between the elasticity of the cost function of coordination of labor division and the output elasticity in the production function is smaller than the output elasticity of human capital, then the equilibrium growth rate will be greater than zero, that is, the growth can be infinite. continue.
The theoretical significance of the new growth theory:
First, it fills the gap in Western economic theory. The new growth theory transforms the source of economic growth from exogenous to endogenous, theoretically explaining that knowledge accumulation and technological progress are the determinants of economic growth, and has made a detailed analysis of the realization mechanism of technological progress. These studies fill the western Gap in economic theory. It regards technology as a central part of the economic system and is "endogenous." And technological progress can increase the return on investment. Investment also makes technological progress more valuable, forming a virtuous circle, and constantly promoting economic growth for a long time.
Secondly, it has found the source and motivation for sustained economic growth. The new growth theory incorporates knowledge and human capital factors into the economic growth model and finds the source and motivation for sustained economic growth. Classical growth theorist David Ricardo draws a pessimistic conclusion that economic development has finally stagnated. Both the Keynesian school and neo-classical growth theory believe that economic development will cease if there is no technological progress. The new growth theory believes that the accumulation of specialized knowledge and human capital can generate incremental returns and increase the returns of other input factors, thereby increasing the total return on scale. This breaks through the traditional economic theory of decreasing or unchanged factor returns. Assumptions illustrate the source and driving force of sustained and permanent economic growth.
Third, it has considerable explanatory power for some economic growth facts. For example, the new growth theory proves the existence of equilibrium in a monopolistic competitive economy, because the monopoly on new technologies and the excess profits they provide provide the impetus for investment and technological research. And due to the spillover effect of knowledge and human capital, developed countries with high human capital have high capital utilization rates. As a result, the rate of return on material capital and the rate of return on human capital will also be higher in these countries. Capital and talent may flow from developing countries to developed countries. In addition, international trade can enable developing countries to take advantage of advanced international technology, thereby promoting technological progress and economic growth in developing countries. At the same time, international trade may also enable developing countries to specialize in traditional product sectors with low technological content, thereby Adverse effects on economic growth in developing countries, etc.
Finally, it has a major impact on economic policymaking. According to the new growth theory, the role of market forces is not enough to take advantage of the maximum innovation potential that society can achieve, and a part of the innovation potential is wasted. The government has the responsibility and reason to intervene, and as a result, it has increased economic growth. But policy makers are focusing on the business cycle, and it's not right to be busy with "fine-tuning" and seeking ways to manipulate "soft landings." Because what supports the business cycle is the process of discovery and innovation. Therefore, the government should focus on policies that can promote the development of new technologies. Such as supporting education, stimulating investment in physical capital, protecting intellectual property rights, supporting research and development, implementing international trade policies that are conducive to the formation of new ideas and being passed around the world, and avoiding government distortion of the market.
The new growth theory has provided many profound insights into economic growth and economic development, and has had a wide-ranging influence in the economics theory community and the economic practice of various countries. New growth theory is still continuing to develop, new theoretical models are still being produced, and some strict assumptions are gradually relaxed. More and more new growth theorists have begun to incorporate policy variables into new growth models. Some scholars have used new The analytical framework of the growth model provides an empirical analysis of economic growth in various countries. It is foreseeable that through these studies, the new growth theory will gradually mature.

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