Co

mp

any

LO

GO

The

ory

of G

row

th a

nd D

evel

opm

ent

En

do

gen

ou

s G

row

th M

od

el

Pre

sent

ed B

y:

Dev

elop

men

t Eco

nom

ics

�D

evel

opm

ent e

cono

mic

s is

the

stud

y of

fulfi

lling

unl

imite

d hu

man

wan

ts b

y be

st u

tiliz

atio

n of

sca

rce

reso

urce

s an

d it

emph

asiz

es o

ver

the

infr

astr

uctu

ral d

evel

opm

ent a

s w

ell.

�It

invo

lves

the

crea

tion

of th

eorie

s an

d m

etho

ds th

at a

id in

th

e de

term

inat

ion

of p

olic

ies

and

prac

tices

and

can

be

impl

emen

ted

at e

ither

the

dom

estic

or

inte

rnat

iona

l lev

el.

Gro

wth

and

gro

wth

rat

e

�In

crea

sing

gro

ss n

atio

nal p

rodu

ct o

f a c

ount

ry in

a

part

icul

ar ti

me

usua

lly o

ne y

ear

is k

now

n as

the

grow

th.

100

0

01

×−

=y

yy

Gro

wth

Whe

re,

y 1=

Gro

ss N

atio

nal P

rodu

ct o

f the

cur

rent

yea

ry 0

= G

ross

Nat

iona

l Pro

duct

of t

he p

revi

ous

year

Gro

wth

vs.

Dev

elop

men

t

�In

crea

sing

the

prod

uctio

n in

one

or

mor

e se

ctor

s of

a c

ount

ry

is k

now

n as

gro

wth

. On

the

othe

r ha

nd, e

cono

mic

de

velo

pmen

t is

long

-ter

m p

roce

ss, b

y w

hich

nat

iona

l inc

ome

of a

cou

ntry

incr

ease

s co

ntin

uous

ly a

long

with

infr

astr

uctu

ral

deve

lopm

ent.

�If

ther

e is

a g

row

th in

a c

ount

ry, t

here

may

not

be

any

deve

lopm

ent.

But

if th

ere

is a

ny d

evel

opm

ent t

here

mus

t be

an

econ

omic

gro

wth

.

The

orie

s of

gro

wth

�W

hy th

ese

theo

ries?

�P

opul

ar T

heor

ies:

�C

lass

ical

theo

ry (

Har

rod-

Dom

arM

odel

)�

Neo

-Cla

ssic

al th

eory

(S

olow

-Sw

an M

odel

)�

End

ogen

ous

Gro

wth

The

ory

Har

rod-

Dom

arM

odel

�Li

mita

tions

:�

In th

is m

odel

, sav

ings

rat

io a

nd c

apita

l fo

rmul

atio

n ra

tio a

re a

ssum

ed to

be

cons

tant

. But

th

ey fl

uctu

ate

a lo

t.�

The

theo

ry is

bas

ed o

n ‘L

aiss

ez F

aire

’eco

nom

y,

whe

re th

ere

will

be

no G

ovt.

inte

rfer

ence

. But

in

prac

tical

, pur

e La

isse

z F

aire

doe

sn’t

exis

t at a

ll.

�A

nd, t

he la

st o

ne, i

t is

not a

pplic

able

in th

e de

velo

ping

cou

ntrie

s lik

e B

angl

ades

h, In

dia,

Sri

Lank

a an

d P

akis

tan.

Roy

F. H

arro

d

(190

0-19

78)

Neo

-Cla

ssic

al M

odel

�Li

mita

tions

:�

It do

esn’

t pro

vide

an

y ne

w th

eory

of

deve

lopm

ent.

It ju

st s

olve

s th

e pr

oble

m o

f H

arro

d-D

omar

mod

el.

�T

his

theo

ry e

mph

asiz

es o

ver

tech

nolo

gica

l adv

ance

men

t, bu

t it

coul

dn’t

show

the

exac

t det

erm

inan

ts o

f th

e te

chno

logi

cal p

rogr

ess.

�T

his

theo

ry is

bas

ed o

n di

min

ishi

ng

mar

gina

l ret

urn,

whi

ch o

nly

can

ensu

re a

st

eady

rat

e fo

r th

e sh

ort t

erm

, not

a lo

ng-

run

grow

th in

the

econ

omy.

Rob

ert S

olow

Evo

lutio

n of

End

ogen

ous

The

ory

�E

ndog

enou

s m

eans

‘int

erna

lly d

eriv

ed’.

�D

evel

oped

in 1

980

by P

aul R

omer

and

Rob

ert L

ucas

.�

End

ogen

ous

grow

th th

eory

atte

mpt

s to

exp

lain

gro

wth

rat

es a

s fu

nctio

ns o

f soc

ieta

l dec

isio

ns, i

n pa

rtic

ular

sav

ing

rate

s.

Rob

ert L

ucas

Pau

l Rom

er

Mai

n T

hem

e

�T

he m

odel

def

ines

that

out

put a

nd g

row

th d

epen

d on

the

inte

rnal

va

riabl

e sa

ving

rat

e. It

is th

e sa

ving

rat

e th

at is

con

vert

ed in

to

hum

an c

apita

l inv

estm

ent (

inve

stm

ent f

or in

nova

ting

new

idea

s an

d m

etho

ds).

�It

also

hol

ds th

at te

chno

logi

cal p

rogr

ess

is e

ssen

tial f

or e

cono

my’

s lo

ng-r

un g

row

th. B

ut th

e de

term

inan

t of t

he te

chno

logi

cal p

rogr

ess

isth

e sa

ving

rat

e.

Ass

umpt

ions

�N

o po

pula

tion

grow

th�

No

depr

ecia

tion

�T

echn

olog

ical

pro

gres

s is

ess

entia

l�

Incr

easi

ng r

etur

ns to

sca

le�

Mar

gina

l pro

duct

of c

apita

l is

cons

tant

Thi

s m

odel

ass

umes

that

inve

stm

ent i

n ed

ucat

ion

and

rese

arch

will

no

t onl

y ha

ve p

ositi

ve e

ffect

on

the

firm

or

indi

vidu

al w

ho is

mak

ing

the

invo

lvem

ent,

but a

lso

will

hav

e on

oth

ers

of th

e en

tire

econ

omy.

Impo

rtan

t Ter

ms

�R

etu

rns

to s

cale

:�

Con

stan

t ret

urns

to s

cale

�In

crea

sing

ret

urns

to s

cale

�D

ecre

asin

g re

turn

s to

sca

le

�S

pill

ove

r E

ffec

t:S

pillo

ver

effe

cts

whi

ch in

volv

e in

volu

ntar

y im

posi

tion

of c

osts

or

ben

efits

.

The

ory

Exp

lana

tion

�T

his

theo

ry e

mph

asiz

es e

duca

tion,

kno

wle

dge,

exp

erie

nce,

re

sear

ch a

nd tr

aini

ng a

re th

e so

urce

s of

gro

wth

, bec

ause

thes

e th

ings

cre

ate

a pr

oces

s of

inno

vatio

n.

Inno

vatio

n ar

e of

two

type

s:

�H

oriz

onta

l Inn

ovat

ion

�V

ertic

al In

nova

tion

Alg

ebra

ic E

xpre

ssio

n &

Gra

phic

al R

epre

sent

atio

n

)2(...

......

.sY

K=

∆

saK

K=

∆/

saY

Y=

∆/

)3..(

......

....

saK

K=

∆

)1.(...

......

.aK

Y=

End

ing

Poi

nt

�H

ow th

is th

eory

is

bette

r th

an o

ther

s?�

Thi

s th

eory

ens

ures

su

stai

nabl

e gr

owth

ove

r a

long

per

iod

of ti

me

�It

rem

oves

the

prob

lem

s of

th

e pr

evio

us th

eorie

s

�D

raw

back

s:�

Bas

ed o

n T

radi

tiona

l A

ssum

ptio

ns li

ke o

ther

th

eorie

s

�It

over

look

s th

e in

fluen

tial

fact

ors

�It

igno

res

shor

t-ru

n an

d m

id-r

un g

row

th

Co

mp

any

LO

GO

Que

stio

ns a

nd A

nsw

ers