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Keywords

technology, development

Abstract

Traditional models (presented before 1980s) which claimed to explain the reasons and process of economic growth had rarely considered improvement in quality of technology (or innovation) as the main reason for economic growth. Most of the traditional models such as Harrod-Domar, Lewis etc focused on Capital (K) as the famous factor of production that individually suffered from the diminishing marginal productivity. In fact, the famous Neoclassical model of economic growth (Solow version) assumed that both traditional factors of production such as Labor (L) and Capital (K) go through decreasing returns to scale, which means by just applying more capital, or more labor alone, the economies would experience slower rather than higher rate of growth. Therefore in that model we thought the growth is basically coming from “outside factors” such as increased international trade, lower taxation or reduced regulation. This assertion also promoted the argument that growth is “exogenous” rather than “endogenous”. The whole picture of endogenous growth was further drastically changed when Paul Romer (Nobel Prize winner of 2018) arrived on the horizon in 1990s to promote the argument that technological change as against mere Capital (K) can in fact be the prime driver of economic growth. This paper will analyze the traditional arguments of growth and compare them with what Paul Romer’s contribution is to the growth dilemma. The present paper is structured as follows: Section 1 surveys the neoclassical model that claims that growth is exogenous and Section 2 is used to make the main point that innovation, technological growth and entrepreneurship all contribute to economy in a serious way and the growth can be endogenous too. Section 3 points out the main features of this argument as applied to India’s case in a limited sense of the term.

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