Unified growth theory

In economics, endogenous growth theory or new growth theory was developed in the 1980s as a response to criticism of the neo-classical growth model. In the exogenous neoclassical growth model the long-run rate of growth is determined by exogenously specified parameters for the population growth rate and the rate of technical progress. Endogenous growth theory or new growth theory built on this theory and was able to explain how the long run growth of an economy was related to the microeconomic foundations of an economy such as individual's preferences and the economy's market structure.

Unified growth theory was developed to address the inability of endogenous growth theory to explain key empirical regularities in the growth processes of individual economies and the world economy as a whole. Endogenous growth theory was satisfied with accounting for empirical regularities in the growth process of developed economies over the last hundred years. As a consequence it was not able to explain the qualitatively different empirical regularities that characterized the growth process over longer time horizons in both developed and less developed economies. Unified growth theories are endogenous growth theories that are consistent with the entire process of development, and in particular the transition from the epoch of Malthusian stagnation that had characterized most of the process of development to the contemporary era of sustained economic growth.

Unified growth theory was first advanced by Oded Galor and David Weil who were able to characterize in a single dynamical system an initial stable Malthusian equilibrium which due to the evolution of latent state variables, ultimately vanishes endogenously, causing a transitional growth take off before the system gradually converges to a modern growth steady-state equilibrium. The Malthusian state is characterized by slow technological progress and population growth, where the benefits of technological progress are offset by population growth. In the modern growth state technological progress does not encourage population growth but human capital accumulation instead which then further spurs technological progress.

ources

[http://www.econ.brown.edu/fac/Oded_Galor/UGT-lecture%20series-sept6.pdf] Slides of a Lecture Series on the subject by Oded Galor.
* * [http://www.stanford.edu/~promer/EconomicGrowth.pdf Economic Growth] by Paul Romer.
* [http://www.econ.brown.edu/fac/Oded_Galor/UGT.htm Brown University] ]
* "The Transition from Stagnation to Growth: Unified Growth Theory" in the Handbook of Economic Growth, North Holland, 2005.
* * [http://www.esi-topics.com/erf/2007/april07-OdedGalor.html Interview with Web of Science, 2006]
* [http://www.voxeu.org/index.php?q=node/937 Discussion of research in VOX]

Category

Economic Growth


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