The two growth theories referenced are the Neo-classical growth theory and modern growth theory.
Neo-classical Growth Theory
Neo-classical growth theory emphasizes labor, capital, and technology as the primary drivers of economic growth. This theory suggests that economic growth is primarily determined by external factors, such as technological progress and population growth, which are largely independent of internal economic conditions. Key assumptions include diminishing returns to capital and labor, leading to the idea that sustained growth requires continuous technological advancements.
- Key Factors: Labor, capital, and technology.
- Assumptions: Diminishing returns to inputs.
- Focus: External factors, like technology, drive growth.
Modern Growth Theory (Endogenous Growth Theory)
Modern growth theory, also known as endogenous growth theory, posits that internal factors like innovation, human capital, and knowledge accumulation significantly drive long-term economic growth. Unlike the neo-classical model, this theory emphasizes that technological progress is not exogenous but rather a result of deliberate investment in research and development, education, and other factors. Consumer needs and desires play a significant role in directing these investments, further fueling economic expansion.
- Key Factors: Innovation, human capital, knowledge accumulation, and consumer needs/desires.
- Assumptions: Increasing returns to knowledge and human capital.
- Focus: Internal factors, like innovation, drive growth.
In summary, while neo-classical theory emphasizes external factors such as technology and population growth, modern growth theory highlights internal factors like innovation and human capital accumulation as key drivers of sustained economic growth, shaped by consumer needs and desires.
