The first post-Keynesian model, the Harrod-Domar model suggested that economic growth can be achieved if the input of capital increases. Later, the AK model was developed on the former hypothesis. Thus, capital and technological progress are introduced as determinants of economic growth. The shortcoming of this model is that it does not explain what the origin of growth is.

We will write a custom essay sample
on Endogenous growth model vs. Post-Keynesian AK model or any similar
topic specifically for you

Hire Writer

The endogenous growth theory tries to explain the origin of growth by endogenizing the technological progress, more specifically its growth rate.

Thus, it is suggested that people are stimulated to innovate around their technologies in order to have a competitive advantage over their competition. Moreover, the technological progress thus created will generate spillovers that will help others be creative and innovate to generate even more technological progress and create virtuous cycles. The virtuous cycles imply that technological progress made by one firm will positively influence another firm, which in turn will generate technological progress that will positively influence the former firm, and the mechanism goes in this rhythm until an exogenous factor interferes.

The old growth theory is based on the hypothesis of diminishing returns to capital. That is, if human factor remains constant, the impact of one more unit of capital on the output will be less than the impact of the previous unit of capital on the output. That implies that the in the long run the production equation is less than linear and per capita income growth does not occur.

See More on ,

Related Posts

Tiffany from New York Essays

Hi there, would you like to get such a paper? How about receiving a customized one? Check it out