Exogenous Growth
What Is Exogenous Growth?
Exogenous growth, a key precept of neoclassical economic theory, states that economic growth is filled by innovative progress independent of economic powers.
Figuring out Exogenous Growth
The exogenous growth theory states that economic growth emerges due to impacts outside the economy. The underlying assumption is that economic success is essentially determined by outer, independent factors instead of internal, related factors.
From a broad economic sense, the concept of exogenous growth outgrew the neoclassical growth model. The exogenous growth model factors in production, diminishing returns of capital, savings rates, and mechanical factors to determine economic growth.
Exogenous Growth versus Endogenous Growth
The exogenous growth and endogenous growth hypotheses are part of the neoclassical growth models. The two models stress the job of mechanical progress in achieving supported economic growth. Notwithstanding, the former places that mechanical progress alone, outside of the economic system, is the key determinant in expanding productivity, while the last option recommends that an economy's long-term growth is a side-effect of the activities inside that economic system that outcome in mechanical progress.
Exogenous (outside) growth factors incorporate things, for example, the rate of innovative progression or the savings rate. Endogenous (internal) growth factors, in the interim, would be capital investment, policy choices, and an extending labor force population. These factors are modeled by the Solow model, the Ramsey model, and the Harrod-Domar model.
To sum up these models, given a fixed amount of labor and static technology, economic growth will cease eventually as continuous production arrives at a state of equilibrium in view of internal demand factors. When this equilibrium is reached, exogenous factors are then expected to stir up growth.
Features
- The exogenous growth model factors in production, diminishing returns of capital, savings rates, and mechanical factors to determine economic growth.
- Exogenous growth, a key fundamental of neoclassical economic theory, states that economic growth is filled by innovative progress independent of economic powers.
- The endogenous growth model contrasts from the exogenous growth model in that it proposes that powers inside the economic system bring about making the environment for mechanical progress.
- Both the exogenous and endogenous growth models stress the job of mechanical progress in achieving supported economic growth.
