Macroeconomics Growth Theories

Research Project 2: Endogenous Verses Exogenous Growth TheoriesNameCourseTutor’s NameDateNeo-classical TheoryEarly theories of economic growth placed emphasis on accumulation of wealth through trade surplus and the role of economies of scale. Neo-classical theories on economic growth have put more emphasis on factors of production such as factor inputs, size of workforce and productivity of labor. There are two models of economic growth under the neo-classical theory of economic growth. The endogenous growth model assumes that economic growth is generated from within as a result of internal processes. On the other hand, Exogenous Growth Model assumes that economic growth occurs through an exogenous factor of production, which is passage of time. The neo-classical theory of economic growth predicts a decreasing rate of returns on physical factors of production such as machinery, buildings and equipment. For example an increase in capital goods such as machinery will result in less than proportionate increase in growth if labour provided remains constant. Subsequent increases in machinery will result in lower and lower growth until eventually no growth can result from increase in machinery. However if an