New Growth Theory

DEFINITION of 'New Growth Theory'

An economic growth theory that posits humans' desires and unlimited wants foster ever-increasing productivity and economic growth. The new growth theory argues that real GDP per person will perpetually increase because of people's pursuit of profits. As competition lowers the profit in one area, people have to constantly seek better ways to do things or invent new products in order to garner a higher profit. This main idea is one of the central tenets of the theory.

BREAKING DOWN 'New Growth Theory'

The theory also argues that innovation and new technologies don't occur simply by random chance. Rather, it depends of the number of people seeking out new innovations or technologies and how hard they are looking for them. In addition, people also have control over their knowledge capital, ie: what to study, how hard to study. If the profit incentive is great enough, people will choose to grow human capital and look harder for new innovations.

RELATED TERMS
  1. Productivity

    An economic measure of output per unit of input. Inputs include ...
  2. Economic Profit (Or Loss)

    The difference between the revenue received from the sale of ...
  3. Human Capital

    A measure of the economic value of an employee's skill set. This ...
  4. Profit

    A financial benefit that is realized when the amount of revenue ...
  5. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced ...
  6. Labor Productivity

    A measurement of economic growth of a country. Labor productivity ...
Related Articles
  1. Fundamental Analysis

    How Influential Economists Changed Our History

    Find out how these five groundbreaking thinkers laid our financial foundations.
  2. Economics

    The Economics Of Labor Mobility

    Loosening labor restrictions has both good and bad effects for a country and its workers.
  3. Economics

    The Importance Of Inflation And GDP

    Learn the underlying theories behind these concepts and what they can mean for your portfolio.
  4. Mutual Funds & ETFs

    Is Biased Investing Holding You Back?

    Risk aversion seems to come to us naturally, preventing us from stepping into unfamiliar territory. But feeling comfortable isn't always the best thing for your portfolio.
  5. Active Trading

    Giants Of Finance: John Maynard Keynes

    This rock star of economics advocated government intervention at a time of free-market thinking.
  6. Economics

    The Truth about Productivity

    Why has labor market productivity slowed sharply around the world in recent years? One of the greatest economic mysteries out there.
  7. Economics

    The Delicate Dance of Inflation and GDP

    Investors must understand inflation and gross domestic product, or GDP, well enough to make decisions without becoming buried in data.
  8. Economics

    Explaining Economic Indicators

    Investors use economic indicators to gauge investment opportunities and judge the overall health of an economy.
  9. Economics

    Economic Indicators: Reading Between the Lines

    On the surface, economic indicators are sending mixed signals, but what's brewing beneath the surface?
  10. Fundamental Analysis

    How Globalization Affects Developed Countries

    The increase in communications technology has companies competing in a global market.
RELATED FAQS
  1. What's the difference between microeconomics and macroeconomics?

    Microeconomics is generally the study of individuals and business decisions, macroeconomics looks at higher up country and ... Read Full Answer >>
  2. Is Russia a developed country?

    Though it once reigned alongside the United States as a world superpower, Russia is not classified as a developed country ... Read Full Answer >>
  3. Is North Korea a developed country?

    North Korea is one of the poorest and least developed countries in the world. It is far from a developed country. Because ... Read Full Answer >>
  4. Is Mexico a developed country?

    As of 2015, Mexico is not a developed country. However, it beats the majority of its peers in the developing world on most ... Read Full Answer >>
  5. Is China a developed country?

    Despite having the world's second-largest economy and third-largest military, China is still, as of 2015, not classified ... Read Full Answer >>
  6. Is Greece a developed country?

    Greece is a developed country by most meaningful metrics. However, its financial struggles have been well documented in the ... Read Full Answer >>
Hot Definitions
  1. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  2. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  4. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  5. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
Trading Center