Origin of Endogenous growth, innovation in the theory of Growth Presented by: Amstrong Ayuk IBA: 8010 Dr: Louise Kelly

 Endogenous growth model distinguishes itself from neoclassical growth by:  Emphasizing that economic growth is an endogenous outcome of an economic system not the result of forces that impinge from outside  It tries to uncover the private & public sector choices that cause the rate of growth of the residual to vary across countries  The focus of the endogenous growth theory is on the behavior of the economy as a whole

 Two version explains the origins of work on endogenous growth-  The convergence controversy  Question whether per capita income in different countries is converging  Researchers created new data set with information on income per capita for many countries & long period of time  Conver Controversy skips lots of detail and smooth over many complications that made it seems as real controversy at the time  Conver Controversy captures only part of what endogenous growth is all about, it did`nt represent a digression from the main story behind endog`s growth theory, it reinforce a misleading message- data are scare in econ analysis

The Passing of Perfect Competition  This start from the observation that, the researchers had enough evidence to reject all available growth models throughout the 1950s, 1960s and 1970s  What they lack was good aggregate-level models  This model suggest that progress in economics does not come merely from the mechanical application of hypothesis test to data sets  If macroeconomist consider only cross-country regressions deployed in conver controversy, it will be easy to satisfy the neoclassical model in which market incentives & goven`t policies have no effect on discovery, diffusion and technological advances. But if all evidence are considered, economist can go beyond this model and look at the determinants of long-run economic success

Endogenous innovation in the theory of growth  Question: Can economic growth be sustained in the long run? If so what determines the long-run rate of growth; which economies will grow the fastest? What kinds of policies can governments use to accelerate advanced standard of living  The neoclassical growth theory by Solow focus on the process of capital formation  It assumes that all firms act as price takers in an environment of perfect competition  Landes (1969) and Rosenberg (1972) provides comprehensive survey about the relationship between technological advances and American economic growth

The Innovation-based growth model  States output expands in a steady state despite the fact that population size is constant and the economy has no physical capital and the economy grows because intermediate goods are forever being improved thereby raising productivity in the assembly of final output  With the assumptions of exogenous technology and full appropriability of investment, the neoclassical growth model delivers an unequivocal answer that the govern`t need not do nothing to promote accumulation and growth, it says provided an individual is far sighted in their savings behavior and take into account the well being of their offspring and under this conditions the equilibrium growth path will be socially efficient

Conclusion  Improvements in Technology are the best chance we have to overcome the apparent limits to growth. If greater output requires greater tangible inputs, then it seems more likely that the fixity in the supplies of various of the earth`s resources eventually will mean and end to rising per capita incomes