What is New Growth Theory?
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The new growth theory is an economic concept, positing that humans' desires and unlimited wants foster ever-increasing productivity and economic growth. It argues that real gross domestic product(GDP) per person will perpetually increase because of people's pursuit of profits.
Definition
New Growth Theory is an economic concept that suggests human desires and unlimited needs drive continuous productivity and economic growth. It posits that the pursuit of profit by individuals leads to sustained growth in real GDP per capita.
Origin
New Growth Theory originated in the 1980s, developed by economists such as Paul Romer and Robert Lucas. It complements traditional growth theories by emphasizing the role of technological progress and knowledge accumulation in economic growth.
Categories and Features
New Growth Theory is mainly divided into endogenous and exogenous growth models. Endogenous growth models emphasize that technological progress results from internal factors within the economic system, such as R&D investment and human capital accumulation. Exogenous growth models, on the other hand, attribute technological progress to external factors. The theory highlights the importance of knowledge and innovation, considering these as the main drivers of economic growth.
Case Studies
A typical case is Apple Inc. Through continuous R&D investment and innovation, Apple has consistently launched new products, driving its long-term economic growth. Another example is Google, which has maintained its leading position in the search engine market and achieved sustained growth through investments in technology and human capital.
Common Issues
Common issues investors face when applying New Growth Theory include accurately assessing the impact of technological progress and measuring the contribution of knowledge and innovation to economic growth. A common misconception is that all technological advancements automatically lead to economic growth, overlooking the influence of market demand and competitive environments.
