Date of Submission


Date of Award


Institute Name (Publisher)

Indian Statistical Institute

Document Type

Doctoral Thesis

Degree Name

Doctor of Philosophy

Subject Name

Quantitative Economics


Economic Research Unit (ERU-Kolkata)


Gupta, Manash Ranjan (ERU-Kolkata; ISI)

Abstract (Summary of the Work)

Sources of Economic Growth and the Definition of Steady-State EquilibriumEconomic growth is defined as a continuous increase in national income taking place over a time horizon. According to the neoclassical theory of economic growth there are three sources of economic growth: (i) capital accumulation, (ii) growth of labour force and (iii) technological progress.The steady-state growth equilibrium is defined as a state where all major macro-economic variables grow at the same rate so that the ratios of these variables remain unchanged over time. For example, in the one sector aggregative model like that of Solow (1956), capital and labour grow at equal rates and hence capital-labour ratio remains time-independent. If this equilibrium is stable then the rate of growth in the steady-state equilibrium is the long run rate of growth of the economy. In a multi-sectoral dynamic model, steady-state equilibrium growth means balanced growth of all sectors at equal rate.1.1.2 Old Growth Theory Versus Endogenous Growth TheoryIn the old growth theory developed by Solow (1956) and extended by many others, steady-state equilibrium growth rate is exogenous because the rate of growth of labour force and the rate of technological progress are exogenous. This exogenous growth rate cannot be influenced by public policy. However, the rate of growth is endogenous in the old theory when the economy is on the transitional growth path. On the other hand, the long-run rate of growth or the steady-state equilibrium rate of growth is endogenously determined in a model of endogenous growth. In such a model, the rate of growth of labour force or the rate of technical progress is assumed to depend on some macro-economic variables.1.1.3 Sources of Endogenous GrowthThe strand of endogenous growth literature identifies externalities arising from productive inputs. These spillover effects compensate for diminishing returns to physical capital accumulation and make the endogenous growth rate positive.The seed of the idea of endogenous growth can be found in Arrow (1962) where ‘learning-by-doing’ mechanism leads to endogenous technical change. The labourer can gain experience as aggregate physical capital is accumulated and this experience gain is called the process of ‘learning–by-doing’. This leads to an improvement in the labour productivity; and the improvement is internal to the economy as a whole though external to the individual firm. Hence the economy grows because diminishing returns to capital is halted by the increase in labour productivity.Lucas (1988) finds the source of endogenous economic growth in endogenous human capital accumulation; and, in his model, technological change is identical to the human capital accumulation. The rate of accumulation of human capital is endogenous because the consumer allocates his resources between production and human capital accumulation solving a lifetime utility maximization problem.In Romer (1990) and Grossman and Helpman (1991), the technical progress takes the form of product development and this is made by the R & D sector that is the engine of growth. Endogenous allocation of resources between the production sector and the R & D sector makes the rate of technological progress endogenous.


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