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. What key U.S. economic indicators do economists track to determine if the conditions ...

    To determine if conditions for stagflation are present in the U.S. economy, analysts primarily consider the following indicators: ... Read Full Answer >>
  2. What are the main factors that drive share prices in the automotive sector?

    The main factor that drives share prices in the automotive sector is the expected future cash flows of the companies that ... Read Full Answer >>
  3. What are the primary factors that led to the difficult period of stagflation during ...

    Stagflation is a type of economic malaise in which a stagnant economy coincides with high inflation for a period of time. ... Read Full Answer >>
  4. What are the key metrics used to measure the business cycle?

    Gross domestic product (GDP), investments, consumer spending, unemployment and inflation are the key metrics used to measure ... Read Full Answer >>
  5. What are some of the arguments for and against a Value Added Tax (VAT)?

    A value-added tax (VAT) is a type of consumption tax placed on a product whenever value is added at a stage of production ... Read Full Answer >>
  6. How do changes in aggregate demand affect output?

    In economic calculations, changes in the value of calculated aggregate demand necessarily cause an equal and proportionate ... Read Full Answer >>
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. Investing

    The Labor Market Recovery’s Missing Ingredient

    Job creation is running at the fastest pace since the 90s, and there is some evidence that wage growth is finally starting to accelerate, albeit modestly.
  7. Forex Education

    North Korean Vs. South Korean Economies

    North Korea's economy is defined by its military ambitions and the humanitarian aid it receives, while South Korea is a world economic powerhouse.
  8. Economics

    What's Aggregate Demand?

    Aggregate demand is a macroeconomic term describing the total demand in an economy for all goods and services at any given price level in a given time period.
  9. Economics

    The World's Top 10 Economies

    A look at the top ten economies in the world.
  10. 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.

You May Also Like

Hot Definitions
  1. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  2. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  3. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  4. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
  5. Tangible Net Worth

    A measure of the physical worth of a company, which does not include any value derived from intangible assets such as copyrights, ...
  6. Marginal Utility

    The additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important ...
Trading Center