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Reconstructing growth theory: A survey

  • Economics
  • Mathematics


~~~ Discussion i~iiiuiipuiiuii~iiiiuqiuphi~~Aii No. 9146 RECONSTRUCTING GROWTH THEORY:~ ï A SURVEY J3C?.~~1 by Theo van de Klundert lï--, :, and Sjak Smulders September 1991 lssrr o924-7815 RECONSTRUCTING GROWTH THEORY: A SURVEY Theo van de Klundert ' Sjak Smulders ' Department of Economics Department of Ecanomics and CentER for Economic Tilburg University Research, Tilburg University Abstract Recent developments in the theory of economic growth aim at endogenising long-run growth. The paper discusses models in which technological change arises as a by- product of certain economic activities as well as models where some economic actions are explicitly aimed at technological imprwements. In addition, separate sections are devoted to the specific reconstruction of growth theory by M. Scott and models explaining stages of economic development. For expositional purposes the algebra is kept to a minimum. The focus is on theoretical models for a closed economy. Empirical work is only mentioned in passing. July, 1991 We are indebted to S. Kuipers, F. van der Ploeg and A. van Schaik for useful comments on an earlier draft. z 1. Introduction The recent productivity slowdown in a number of rich countries and diverging growth performances of developing countries have led to a renewed interest in the theory of economic growth. Neoelassic:al growth theory developed in the early sixties focussed on the contribution of labour and capital to the process of economic expansion and change. In its different guises, either as growth accounting (e.g. Denison 1985) or as a theory of long-run tendencies (e.g. Solow 1970), it left much to explain. Growth accounting generates a substantial residual, which can not be explained and is attributed to exogenous technological change. In the theory the long-run rate of growth depends exclusively on exogenous factors like population growth and labour-augmenting technological change. The basic idea of the new growth theory is to endogenise the long

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