Different economic growth models, including classical, neoclassical, endogenous, and unified growth theories, explain how non-economic variables affect economic growth. Critical variables include capital accumulation, innovation, and population growth. Classical theory emphasizes agriculture’s role in growth, while neoclassical theory shows how technology drives growth. Endogenous theory adds human capital and explains technological advancement mathematically. Unified growth theory explains long-term similarities in growth processes and global differences in economic development.
While there are many different economic growth models, classical growth theory, neoclassical growth model, endogenous growth theory, and unified growth theory have made significant contributions in this area. Economists use different economic growth models to show how non-economic variables affect economic growth in order to understand why some societies grow faster than others. Critical non-economic variables include the rate of capital accumulation of individuals in society, the flow of invention or innovation, and population growth.
Classical growth theory posits that increased productive capacity with improved capital contributes to stable economic growth. It also explains that agriculture plays a significant role in the growth of any economy. It argues that economic growth will end when population increases and its resources decrease. The theory was developed by David Humedam Smith and other Physiocrats to combat mercantilism. They believed that agriculture plays a key role in economic growth, while focusing on urban industry can cause a long-term disadvantage.
The neoclassical growth model, also called the Solow growth model for its developer, Robert Solow, is different from other economic growth models in that it consists of several equations that show how production, capital goods, working time, and investment affect one. other. This model is based on the assumption that countries use their resources efficiently and as work increases, their returns decrease. The model illustrates that technology is an important driver of growth, and as technology improves, capital increases, the country’s investment increases, and then it experiences general economic growth.
The endogenous growth theory improved the neoclassical growth model, adding the concept of human capital and mathematical explanations for technological advancement. The biggest difference between these two models of economic growth is that endogenous growth theory argues that economies do not achieve stability as economies achieve constant returns to capital. It also states that the rate of economic growth depends on whether the country invests in technological or human capital.
The unified growth theory was created to address the weakness of the endogenous growth theory by qualitatively explaining the different observed long-term similarities of the growth process in economies at different stages of development. Unlike other economic growth models, this model uncovers the variables responsible for taking the economy from stagnation to growth, contributing to the understanding of global differences in economic development. This theory can be used to see how per capita income has diverged over the past two centuries.
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