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.

  1. Human Capital

    A measure of the economic value of an employee's skill set. This ...
  2. Economic Profit (Or Loss)

    The difference between the revenue received from the sale of ...
  3. Productivity

    An economic measure of output per unit of input. Inputs include ...
  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 ...
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