Economic Growth Theory
During World War II (1939–1955), the growth theory gained popularity, and a number of hypotheses to explain why some countries were prosperous and others did not appear. According to these beliefs, the expansion of the labor force, the accumulation of capital, 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.
Since GDP data reflects the average income of a nation’s citizens, it is the primary indicator of economic growth. In the 1950s, academics noted that the 20th century’s economic growth rates were noticeably higher than those of any 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 would 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 levels of labor and capital that are 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, rather than being caused by outside causes, economic growth is produced internally inside the system. 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.