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What is Endogenous Growth Theory?

endogenous growth theory explain

Let’s begin this blog with a riddle, i.e. is it possible to increase income inequality within countries, but to decrease for the world? The answer for this riddle may be “long-run economic growth”. Definitely, income per capita in India and China has grown vastly in the last few decades. But, even though the inequality has increased within India and China, and it has led the living standards for more than millions of people to congregate towards those in countries like North America, Europe, and Australia. However, in this blog, we have tried to cover all the important aspects concerned with Endogenous Growth Theory.

Understand the term “Endogenous Growth Theory”

endogenous growth theory

The endogenous growth theory was first developed due to dissatisfactions and deficiencies on the idea of the ways in which exogenous factors identify long-term economic growth. Particularly, this theory was developed to repudiate the neoclassical exogenous growth theory, as it makes predictions about economic growth.

Our economics assignment experts define endogenous growth theory as an economic theory that discusses the economic growth which is generated within and from the idea where economic growth is because of the reasons which are internal to the economy. The Endogenous Growth Theory is developed based on the concept which improves in knowledge, human capital, and innovation that leads to an increase in productivity that affects economic outlook positively.

This economic model challenges the idea by enlisting the importance on the character of advancements in technology. Even though it is long-term economic growth and it is generally explained on the basis of the growth rate of the economic output of an individual, also it depends on the level of productivity. As a result, productivity mainly depends on the change and progress in technology that highly depends on human capital and innovation; such factors are to be taken into account as an internal and not external to an economy.

Assumptions in the Endogenous Growth Theory

Many economic experts are certain of the Endogenous Growth Theory that emphasizes the government need to offer subsidies and incentives for companies in the private sector. It generally stimulates firms to invest in development and research so they can endure to innovation.

There are cumulative returns by investing in human capital through training programs and education. Following this is helpful in enhancing the labour quality, which also increases productivity. The government is required to enact policies which are helpful for entrepreneurs and develops new jobs and business opportunities.

Investments should be done to enhance manufacturing processes and infrastructure to accomplish innovation in production.

Intellectual property rights, like patents and copyrights, are seen as business incentives in order to expand operations.

Few Endogenous Growth Models Examples Discussed Below By Our Assignment Help Experts

If you have understood the above sections, then it is the time to know the endogenous growth model examples. Few of them are discussed below:

  • Arrow Model

Arrow Model is also called the AK model of economic growth. This model is being used by economists to discuss and describe the economic changes that take place because of technology and innovation. The arrow model also uses the “learning by doing” model in order to describe the ways in which innovations and self-practices result in improving human capital and productivity. This is the reason; it leads to a decrease in labour.

  • Uzawa–Lucas Model

This model describes how economic growth is attributed to the accretion of human capital in the long term. This model says that education must be used to produce human capital.

Hence, the model undertakes that human capital is only the input element in the education sector. It is also accepted that the output of economic should be developed by using human capital and physical capital as well. Consequently, the physical capital ratio to human capital is termed as the measurement that is used to identify the total capital in an economy.

  • Romer Model

The Romer model in Endogenous Growth Model is involved with technical spill overs that are attached with industrialization. Moreover, Romar includes the knowledge level in the organisation’s capital stock. This part of stock capital is generally a public good which has been discussed in the Solow Model. Moreover, the Romer model assumed that the ideas for innovative are quite important in economic growth.

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