The basis of basic economic growth theories

Economic growth theories try to answer a very important and also interesting question: why do different countries have different economic growth rates, or, why are there rich countries and poor countries? Robert E. Lucas Jr., a Nobel on economics winner, once said that when people began to think about this fascinated question, they wouldn't have time to think about anything else.

There are basically two ways to explain this phenomena: the earlier one is called exogenous growth theory and the modern one is called endogenous growth theory. The difference between them is that whether technology is in the model or not. The exogenous theory takes technology as a given factor which means economic players cannot change it, so the conclusion is that when time goes by, countries will eventually have the same growth rate. That is called convergence. However, the endogenous theory makes technology as a variable in models so that people can change it with capital or human resource. So from endogenous theories we can derive that if a country invests more resources in R&D sector, they will have a better economic performance.

[Excellent.]