Economic Growth Theory
During World War II (1939–1955), the growth theory gained popularity, and several hypotheses to explain why some countries were prosperous and others did not appear. According to these beliefs, the labor force’s expansion, capital accumulation, and substantial technical developments are all sources of growth. The major use of the growth theory is to explain why a country’s revenue is increasing. It pinpoints the locations or factors that contribute to development.
GDP data reflects the average income of a nation’s citizens, making it the primary indicator of economic growth. In the 1950s, academics noted that the 20th century’s economic growth rates were noticeably higher than the preceding boom eras. According to experts, the combined effects of excessive labor and capital input growth are to blame.
Different Theories of Growth
Classical Growth Theory
The Classical Development Theory predicts that as a country’s population increases and its resource base becomes more constricted, economic growth will slow down. The nation’s economic development will consequently start to slow down.
Neoclassical Growth Model
The Neoclassical Growth Theory is an economic theory of expansion that describes how the interaction of the three economic forces of labor, capital, and technology leads to a stable pace of economic growth.
The theory contends that different labor and capital levels essential to the production process lead to short-term economic equilibrium. According to the three conditions outlined by neoclassical growth theory, an economy must grow.
Endogenous Growth Theory
According to the endogenous growth theory, economic growth is produced internally inside the system rather than being caused by outside causes. The neoclassical growth model, which contends that external causes like technical advancement and other variables are the primary sources of economic growth, disagrees with the theory.
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