Endogenous Growth Theory

DEFINITION of 'Endogenous Growth Theory'

An economic theory which argues that economic growth is generated from within a system as a direct result of internal processes. More specifically, the theory notes that the enhancement of a nation's human capital will lead to economic growth by means of the development of new forms of technology and efficient and effective means of production.

BREAKING DOWN 'Endogenous Growth Theory'

This view contrasts with neoclassical economics, which contends that technological progression and other external factors are the main sources of economic growth. Supporters of endogenous growth theory argue that the productivity and economies of today's industrialized countries compared to the same countries in pre-industrialized eras are evidence that growth was created and sustained from within the country and not through trade.

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