Exogenous Growth
Exogenous growth, a key tenet of neoclassical economic theory, states that economic growth is fueled by technological progress independent of economic forces.
Exogenous Growth
Definition
Exogenous growth is a key concept in neoclassical economic theory, referring to economic growth driven primarily by technological progress, rather than by internal economic forces or policies. In other words, technological progress is considered an exogenous variable, meaning its changes are not influenced by factors within the economic system.
Origin
The theory of exogenous growth originated in the 1950s with the Solow-Swan model, independently developed by Robert Solow and Trevor Swan. This model emphasized the roles of capital accumulation, labor growth, and technological progress in economic growth, particularly highlighting technological progress as an exogenous factor.
Categories and Characteristics
The exogenous growth theory has the following key characteristics:
- Exogeneity of Technological Progress: Technological progress is considered an exogenous variable, not influenced by internal economic factors.
- Role of Capital and Labor: Capital accumulation and labor growth impact economic growth in the short term, but in the long term, technological progress is the main determinant of economic growth.
- Steady-State Growth: Under steady-state conditions, the economic growth rate is determined by the rate of technological progress, rather than by the growth rates of capital or labor.
Specific Cases
Case 1: In the mid-20th century, the economic growth of the United States was primarily driven by technological advancements such as the invention and widespread adoption of computers and the internet. These technological advancements were considered exogenous factors that boosted productivity and sustained economic growth.
Case 2: Post-World War II Japan experienced rapid economic growth, largely attributed to the introduction and innovation of technology. Although the Japanese government implemented various economic policies, technological progress was still seen as an exogenous factor playing a crucial role.
Common Questions
Question 1: Why is technological progress considered an exogenous factor?
Answer: In exogenous growth theory, technological progress is considered an exogenous factor because its changes are not influenced by internal economic factors but are determined by external factors such as scientific discoveries and technological innovations.
Question 2: What are the limitations of exogenous growth theory?
Answer: The main limitation of exogenous growth theory is that it does not explain the sources and mechanisms of technological progress, nor does it account for differences in technological progress between different countries or regions.
