New Growth Theory

AAA

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.

INVESTOPEDIA EXPLAINS '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. Profit

    A financial benefit that is realized when the amount of revenue ...
  2. Human Capital

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

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

    An economic measure of output per unit of input. Inputs include ...
  5. Global Recession

    An extended period of economic decline around the world. The ...
  6. Debt-To-GDP Ratio

    The ratio of a country's national debt to its gross domestic ...
RELATED FAQS
  1. No results found.
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 World's Top 10 Economies

    A look at the top ten economies in the world.
  7. Personal Finance

    The Canadian Economy, At A Glance

    The 12 economic indicators described here together provide a comprehensive picture of the state of the Canadian economy.
  8. Economics

    What does Current Account mean?

    The current account reflects the difference between a country’s savings and investments.
  9. Economics

    The Constant Crisis Of The North Korea Economy

    A peek into the secretive and totalitarian economy of North Korea
  10. Economics

    What's the GNP?

    Gross national product (GNP) is one of many metrics economists use to measure a country’s economic output. For any one year, GNP equals the market value of all the goods and services produced ...

You May Also Like

Hot Definitions
  1. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  2. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  3. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  4. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  5. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  6. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
Trading Center