The Theory Of Economic Growth Theory

1703 WordsJul 6, 20157 Pages
Literature review As an important and popular issue in the field of economic research, it attracts many economists and there are many models to explain economic growth. In the history of the development of economic growth theories, there are three important stages which are the Classical Growth theory, the Neoclassical Growth theory and the Endogenous Growth theory. To start with, the Classical Growth theory is based on the Keynesian theory and the representative one is the Harrod–Domar model. It was put forward by Roy F. Harrod in 1939 and Domar in 1946. This is the first economic growth model, changing the research on economic growth from the qualitative to the quantitative. There are four exogenous parameters in the Harrod–Domar model: the capital - output ratio, saving rates, technological progress and population growth rate (Harrod, 1939). Harrod brought in the notion of three different growth. The first one is warranted growth (Gw), which means the growth rate when the investment can absorb all saving. The second one is natural growth (Gn), which is the rate to maintain full employment and determined by labor force. And the last one is actual growth (G), which can be determined by saving rate. The condition of stable growth is G=Gw=Gn. However, the condition cannot be met in the real world. As a result, the result of the Harrod–Domar model is the unstable growth (ibid). After that, Solow and Swan proposed the Solow-Swan model in 1956 separately, which belongs to
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