Question

Compare the neoclassical model, the new endogenous growth model and the strategic trade theory. Any differences between these theories? What are the differences? Explain in detail.

Answer 1

NEOCLASSICAL GROWTH MODEL

• Neoclassical growth model prevailed during the period of 1985.
• This model is also known as Exogenous Model.
• This model considers the external factors to predict the economic growth.
• It suggested that without technological, progress economic growth cannot be achieved.
• It identifies that both the capital level per worker and the effectiveness of labour can create permanent growth in the per capita stock per labor of the economy.
• It predicts only conditional convergence. It put forwards that the two economy's will have the same level of per capita only if, both the economy's have same level of saving rates, production function, technological progress , depreciation rate and population growth.

ENDOGENOUS MODEL

• It emerged due to the failures of neoclassical model.
• It considers internal factors to predict and analyse the economic growth.
• It suggested that with the help of human capital ,economic growth can be acheived.
• It identifies that both the level of knowledge and specialization can be improved within the economy without any technological progress.
• It states that there will be no convergence or, there will be a slower growth in the rate of per capita.

STRATEGIC TRADE THEORY

• It was advocated during the period of 1985.
• It emphasizes the importance of public policy and provides some space for the Government for national welfare.
• It showcases the importance of Government as an important ingredient in improving the performance of the economy.
• This theory concludes that Government plays a major role in shaping the nature of international competition.
• One of the rationale of strategic trade theory is is the 'terms of trade' argument in which,a trade restriction can benefit an economy through influencing world prices.
• It focuses on oligopoly in international markets as the rationale for Goverment interventions.
• Government intervention through focusing on an intrested group influences an industry which ultimately maximizes national welfare.