Economics Economic Growth Models Essay Example | Topics and Well Written Essays - 1000 words

Economics Economic Growth Models - Essay Example As the paper stresses one common theme of these models is that the economy will have a steady growth rate that depends on labor force growth and technological growth. New Growth Theory came about because of discontent within the circle of economists with the Neoclassical Growth Model. New Growth Theory was developed during the 1950's and 1960's. It returned to the forefront of economic thought during the 1980's because many felt that the old theories were outdated and did not fit the modern world. The new theory, based on knowledge and creativity, was developed to fit modern economic growth. This new theory is also called Endogenous Growth Theory because changes are made within the model rather than exogenously (outside the model). According to this theory mind power (knowledge) and creativity are important factors in production and, added to labor and capital, increase economic growth. This theory states that creativity added to labor increases growth, creativity improves both capit al and labor, and creativity extends resources and tends to abundance.This paper outlines that in New Growth Theory creativity rearranges resources and thus resources become unlimited. In the neoclassical growth model resources are limited. Subsidies in research and development are argued to increase growth due to an increase in knowledge and innovation. Big players in the development of this model were Theodore Schultz, an economist at the University of Chicago, and Gary Becker, Nobel Prize winner for economics in 1992. Schultz, also a Nobel Prize winner, developed theories about the use of human capital to increase agricultural production. Shultz theorized that investing in education would invariably increase agricultural output. Becker added on to Shultz's theory by explaining that expenditures on education, skills training, and medical care can be considered human capital and can, if invested in, increase productivity and output.