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MENTAL MODEL · M3529

Endogenous Growth Theory

Endogenous Growth Theory
BusinessHigh supportEconomics
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Updated 2026-07-31

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INTRODUCTION

English translation pending.

CORE DEFINITION

A family of growth models developed from the mid-1980s, notably by Paul Romer and Robert Lucas, in reaction to the Solow model's treatment of technology as exogenous. Endogenous growth theory models technological change as the outcome of intentional research and development, human capital accumulation, and knowledge spillovers. Because knowledge is non-rival, its returns need not diminish, so increasing returns and sustained growth in output per head become possible. The policy implication is that research subsidies, education, and intellectual property rules can raise the long-run growth rate rather than only the level of output.

SCAFFOLDING EFFECT

psychology

Reduce cognitive load

- Growth driver mapping: Identify whether growth comes from factor accumulation or from knowledge. - Policy lever choice: Target research, education, and property rights when the aim is the long-run rate. - Spillover capture: Design clusters so knowledge produced by one firm benefits others.

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Anchor fast decisions

In the Solow framework, diminishing returns to capital push the economy to a steady state and technology arrives from outside. Once knowledge is modelled as produced inside the system and non-rival, its use by one party does not deplete it, so spillovers generate increasing returns that offset diminishing returns to physical capital. Growth then depends on the incentives to invest in ideas, which policy can change, and economies need not converge to a common income level.

MINIMUM ACTION

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Source support: Explicit

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    en.wikipedia.orghttps://en.wikipedia.org/wiki/Endogenous_growth_theoryZH · Explicit
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