Endogenous growth theories and new strategies for developmentAfter studying this chapter, you should understand:
|• the difference between "conditional" and "unconditional" income convergence;|
|• the basic structure of endogenous growth models and how they differ from both the classical and neoclassical growth theories;|
|• the importance of human capital, learning-by-doing and other positive externalities to sustaining economic growth;|
|• the significance of constant and increasing returns in the endogenous growth models;|
|• the effects of inequality of income and land distribution on the rate of economic growth;|
|• the importance of social infrastructure and other alterable initial endowments to the rate of economic growth;|
|• the significance of "technical efficiency change" and "total factor productivity" to economic growth; and|
|• the role that social institutions can play in contributing to or thwarting economic progress.|
Near the end of Chapter 4, the Solow neoclassical growth theory was introduced. It has been interpreted as predicting that the per capita incomes of economies will tend to converge to the same level over time as lower income nations grow faster than higher income nations, assuming they all have access to the same technology and share similar savings and investment rates.
1 Solow's theoretical structure lent credence to and validated the policy recommendations of many of the early developmentalist economists and their policy-oriented theories, like the "big push," "balanced growth" and "unbalanced growth" strategies considered in Chapter 5. You will remember that these were strategies that focused on the expansion of the industrial capital stock and the rate of savings as the means to promote economic growth and higher income per capita.
The primacy of physical capital accumulation, the K variable in the Solow-type aggregate production function, has continued to draw the attention of development economists. In this traditional view, to develop, countries need to save and invest so