What is Exogenous Growth?
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Exogenous growth, a key tenet of neoclassical economic theory, states that economic growth is fueled by technological progress independent of economic forces.
Definition
Exogenous growth is a key concept in neoclassical economic theory, referring to economic growth driven primarily by technological progress, rather than by internal economic forces or factors. This means that technological advancement is considered an external factor, not influenced by changes within the economic system.
Origin
The theory of exogenous growth originated in the 1950s, proposed by economists Robert Solow and Trevor Swan. Their model emphasized technological progress as the main driver of economic growth, treating it as an exogenous variable. This theory was elaborated in Solow's 1956 paper.
Categories and Features
The exogenous growth model mainly includes the Solow model and the Swan model. These models are characterized by treating technological progress as an exogenous variable, assuming limited inputs of capital and labor, with long-term economic growth relying on technological advancement. They are primarily applied in analyzing long-term economic growth trends and policy formulation. The advantage is simplicity and clarity, while the disadvantage is the neglect of the endogeneity of technological progress.
Case Studies
A typical case is the economic growth of the United States in the latter half of the 20th century. During this period, U.S. economic growth was largely driven by technological progress, particularly innovations in information technology and communications. Another example is Japan's post-World War II economic recovery, where rapid growth was achieved through the introduction and improvement of technology, aligning with the exogenous growth theory.
Common Issues
When applying the exogenous growth theory, investors often overly rely on technological progress while neglecting the impact of other economic factors. Additionally, misunderstanding the endogeneity of technological progress can lead to an oversimplified understanding of economic growth. It is important to note that while technological progress is exogenous, its impact is profound and should be analyzed in conjunction with other economic factors.
