Question

Compare and contrast the three main types of economic growth models (stages of growth, neoclassical, and endogenous growth). Describe pros and cons of each approach. Which model of economic growth is best and why?

Answer 1

let us understand the basic difference between Exogenous and Endogenous Model.


Exogenous Models (Neo-classical) consider external factors to predict the economic growth. For example: Under Solow Model, Solow suggested that without technological progress, economic growth can’t be achieved.

Similarly, Endogenous Model consider internal factors to predict and analyses the economic growth. For example, Under AK Model, it suggested that without technological progress, with the help of human capital, economic growth can be achieved.

The Solow Model identifies the capital level per worker and the effectiveness of labor both as the ability to create permanent growth in the per capita stock per labor of the economy. While, AK Model (Endogenous) doesn’t dispute that. It simply state that the factors of effective human capital i.e. the level of knowledge and specialization available and utilized can be determined and improved within the economy without any need to bring the technological progress.

The Solow Growth Model predicts only conditional convergence. It states that only if two economy has same saving rates, same production function, same rate of technological progress, sam depreciation rate with same growth of population, then we can conclude that both the economy will converge to rhe same steady state level of per capita output.  

However, under AK Model, it suggested that there will be no “Convergence Dynamics” towards steady state level of output or it could be slower than what Solow predicted about state of convergence in its model.