Endogenous growth theory romer

Endogenous growth theory romer - Endogenous growth theory...

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Endogenous growth theory In neoclassical growth models, the long-run rate of growth is exogenously determined by assuming a savings rate (the Solow model) or a rate of technical progress. This does not explain the origin of growth, which makes the neo-classical model appear very unrealistic. Endogenous growth theorists see this as an over-simplification. Households are assumed to maximize utility subject to budget constraints while firms maximize profits. Crucial importance is usually given to the production of new technologies and human capital. The engine for growth can be as simple as a constant return to scale production function (the AK model) or more complicated set ups with spillover effects, increasing numbers of goods, increasing qualities, etc. Endogenous growth theory demonstrates that policy measures can have an impact on the long-run growth rate of an economy. In contrast, with the Solow model only a change in the savings rate could generate growth. Subsidies on research and development or education increase the growth rate in some endogenous growth theory models by increasing the incentive to innovate. Often endogenous growth theory assumes constant marginal product of capital at the aggregate level, or at least that the limit of the marginal product of capital does not tend towards zero. This does not imply that larger firms will be more productive than small ones,
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This note was uploaded on 03/31/2010 for the course ECONOMICS 322 taught by Professor H during the Spring '08 term at Kadir Has Üniversitesi.

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Endogenous growth theory romer - Endogenous growth theory...

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