A Comparitve analy sis of Neo - Classical and endogenous growth models


Our review of the neoclassical model emphasizes that it is in fact not a
model of ongoing growth, since it implies that per capita output nues will
approach constant values in the absence of exogenous ( there fore
unexplained) technological proKress. Several analyt ical results are
exposited, Following this review, it is argued that the neoclassical approach not only fails to provide an explanation of everlasting steady - state growth. hut also cannot plausibly explain actual observ ed cross-country growlh rate:
differences by reference to transitional (i.e., non-steady-state} episodes. It can, with the inclusion ofhuman capital inputs, explain a substantial
portion ofobserved cross-country differences in income levels, but there
are some questionable aspects of this accomplishment and, in any event,
explaining levels is not the main task of a. theory of growth.
The endogenous growth literature attempls to provide explanations for
ongoing, steady-state growth. in per capita output values and consequently for growth rate differences across countries. Three types of endogenous growth models are presented, featuring (i) externalities resultingfrom linked capital- and- knowledge acdumulation, (ii) accumulation of human capital (i, e., individuals' workplace skills). and (iii) continuing growth in the stock ofexisting productive "designs," with the entire stock facilitating the creation of additional designs (that are produced in re.'ponse to private rewards). The last of these types seems most plausible as a mechanism capable of generating long-lasting growth. The likelihood o] obtaining steady-state (never-ending hut non-explosive) growth. from any of the models seems very small, however, since such a result would require highly special (zero measure) parameter values. The endogenous growth approach seems fruitful, nevertheless, as it con in principle rationalize long-lasting growtn and growth rate differences across economies and will indicate with reasonable accuracy the effects of changes in policy, tastes,
of technology that alter the steady-state capiialllabor ratio