Abstract
This chapter is a survey of the two prominent theories of economic growth (the neoclassical theory as proposed by Solow [1956] and the endogenous growth theory that originated from the seminal works of Romer [1986]). To date, works following these have essentially been their extensions/refinements and some of the important extensions have also been summarised in this chapter. The current chapter discusses their major findings and implications for policy. It is also shown that the Solow model can be extended and used for policy. The endogenous growth theory, although stated to have some drawback, is useful for policy, as it has added new thoughts on how productivity may be generated. The chapter remains highly theoretical and derivations are suppressed, unless they become necessary. This survey finds that while the driving force of growth has been known since Solow's proposition, the endogenous models have provided some discussions on how economies may achieve productivity growth. Some important sources of productivity advancements that have been suggested are through human capital, research and development, innovations, knowledge creation, and supportive institutions and social infrastructure.
TopBackground
It is acceptable to say that the growth literature provides some understanding on accelerating and managing economic growth. For example, it is agreed that opening-up for trade and financial flows have strong positive associations with high rates of growth. Similar case can be made for education and learning-by-doing. Further, innovation and R&D activities are also useful growth factors. We know that economies require practical policies to escalate growth rates including those for removing structural inefficiencies resulting from internal and external shocks. However, it is also true that some of the major drivers of growth are invariant to policy. Sala-i-Martin’s (1997) experiments (details later) show that religious, social and cultural factors rank on the list of top-10 determinants of growth. Conversely, Levine and Renelt (1992) argue that only (equipment) investment is important. Practical experiences of Argentina, Mexico and Brazil show the importance of social capital and quality institutions, disproving that a resource rich economy is posed to grow in the long-run. Similarly, drastic fall of human welfare in many of the sub-Saharan African countries reminds us that international aid cannot reverse the negative rates of growth. Therefore, it is hard to pin-down high rates of growth to a set of common factors as advanced by the large body of empirical growth literature. This controversial, yet interesting literature is the focus of the next chapter in this text. However, it is important to first get the theoretical insights into forces of growth. These insights place the readers or researchers at some standpoints to help them have a better view to how processes of growth eventuates leading to any sustained improvements to the quality of welfare and human lives.