Economic growth : a review of the theoretical and empirical literature

In recent years, economists have developed new models of endogenous economic growth that consider policy influences on growth and divergent outcomes among countries. These models deal with such issues as growth, the operation of financial markets, trade policy, government expenditures, and taxation. Using the standard neoclassical growth model as a point of departure, the author reviewed important recent developments in growth theory. He analyzed the methodology of several endogenous growth models and examined models aimed at particular policy issues. One reason for the success of the standard neoclassical growth model, is that it provided a convenient tool for organizing data on the sources of economic growth. The model left much of the growth unexplained, however. Cross-sectional analysis has provided some useful insights into the growth process. Economists working in this area should target their work directly to the analysis of policy options in developing countries. More work is also necessary at the sectoral level. The new models of growth have not adequately described the issues of structural transformation and disequilibrium in factor markets. Policymaking generally will benefit from empirical results generated from more carefully constructed structural economic models.