Abstract
This chapter presents a theoretical analysis of economic growth. The first growth model in modern economics is arguably the Harrod–Domar growth model, named after Roy Harrod and Evsey Domar. Under this model, the major obstacle to economic growth is a lack of investment, which in turn is caused by a lack of capital. Therefore, the solution to poor growth is to somehow plug the savings gap by increasing domestic savings or foreign aid. Two other growth models that emphasize the importance of investment and capital accumulation were proposed by Nobel Laureate Arthur Lewis and Walt Rostow. The main thesis behind Lewis’s model is the idea of unlimited surplus of rural labor. Growth is therefore predicated on the increase in size of the industrial sector in the economy. Meanwhile, Rostow posits a five-stage evolutionary growth model. He argues that the key to moving from one stage to the next is the extension of the existing structure of production, which again requires investment in the capital stock. The chapter also looks at the Solow–Swan model, which is often regarded as the first modern growth model, as well as the endogenous growth models such as the AK model; the Lucas Human Capital model; the Romer Knowledge Spillover and Product Variety models; and the Schumpeterian growth models.
Published Version
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