Neoclassical vs. Endogenous Growth Analysis: An Overview Bennett T. McCallum After a long period of quiescence, growth economics has in the last decade (1986–1995) become an extremely active area of research— both theoretical and empirical.1 To appreciate recent developments and understand associated controversies, it is necessary to place them in context, i.e., EXOGENOUS AND ENDOGENOUS GROWTH Neo-classical theory, in all its forms, shows a strong tendency to reduce the economic complexity of the analysis, doing so by holding the institutional framework constant. As with neoclassical growth theory, it is difficult to point to a particular policy that was implemented because a policymaker sat down and read an academic article on endogenous growth theory. Endogenous growth theory challenges this neoclassical view by proposing channels through which the rate of technological progress, and hence the The Endogenous growth theory contrasts with neoclassical economic theory, which contends that technological development and other external elements are the primary sources of monetary and economic growth. As in neoclassical growth theory, the focus in endogenous growth is on the behavior of the economy as a whole. Endogenous growth theory. Endogenous growth theory or new growth theory was developed in the 1980s by Paul Romer and others. This paper begins with an exposition of neoclassical growth theory, including several analytical results such as the distinction between golden-rule and optimal steady states. public sector choices that cause the rate of growth of the residual to vary across countries. It is a new theory which explains the long-run growth rate of an economy on the basis of endogenous factors as against exogenous factors of the neoclassical growth theory. I'm not really sure what Alan Sloan is going on about...but...the main difference is that neoclassical growth theory was all about capital stock. Abstract. The endogenous growth theory was developed as a reaction to omissions and deficiencies in the Solow- Swan neoclassical growth model. The traditional neoclassical theory of economic growth is rich analytically but fails to provide any explanation of steady-state growth in per capita values of output or consumption and cannot plausibly explain actual cross-country growth differences as transitional episodes. The resurgence of growth theory that took place in the 1980s, and involved the development of endogenous growth models, arose in response to a perception that the neoclassical framework was severely inadequate for the analysis of actual growth experiences. Choi (1983:33) 3.1 INTRODUCTION In terms of the initial neoclassical theory described by Solow (1956) and In the neo-classical model, technological progress is an exogenous variable. The neo-classical growth model makes no attempt to explain how, when and why technological progress takes place. Contrary to the neoclassical growth theory, the endogenous growth theory, states that economic development, based on different functions in the society is generated internally in the economy that is by endogenous forces. Neoclassical theory thus implies that economists can take the long-run growth rate as given exogenously from outside the economic system.