Paper Example on Exogenous and Endogenous Growth Theories

Published: 2023-01-16
Paper Example on Exogenous and Endogenous Growth Theories
Type of paper:  Essay
Categories:  Economics
Pages: 4
Wordcount: 943 words
8 min read

Over the years, both exogenous and exogenous theories have been debated over the current neoclassical growth model. These growth models are relevant in explaining how the economy can work to realize growth however, the model fails to answer the question of why the growth particularly happens. For the purpose of incapacitating this uncertain defect in the model, the theories have to discuss the particular policy that measures topics like R$D companies together with education. Both of these theories increase the economic growth rate in the long run situations. Policy creators have for a long time been debating if certain expansionary models can positively impact or hamper economic growth. Hence this type of spending mainly influences the economy negatively because they make an alteration in wealth.

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Both exogenous and endogenous growth theories affect growth from both the inside and outside of the model in the economy. Endogenous can be referred to as the specific factors which affect the economic growth from the inside of the model. Hence when there is an increment in the external factors example, labor force increment using fixed capital, the output produced will highly impact the economic wealth. Another point to highlight is that endogenous growth refers to the rate of growth that is influenced by external factors and this can spread into various effects (Dietz & Stern, 2015). An example is when there is a technological improvement in the economy and this may automatically result in an increase in the overall output that's being produced. Another example is the increment of mechanization which results to increase in the output.

On the other hand, exogenous growth theory considers the economic growth that is influenced solely by the external factors. In the discussion regarding the exogenous model of economic growth, when a fixed or constant technology and labor amount it will get to a point there will be a termination of economic growth. Usually, during an on-going production, there is a particular point where there is a symmetrical state and this is when the internal characteristic of demand is completely met. From the exogenous growth theory, it's evident that the returns are reduced with technological variables and capital variables which determines the growth of the economy. The endogenous model is mainly based on capital, investments, policies and also other internal measures that are regarded variable for the growth of the economy. This quite opposite from the external economic growth elements (Dietz & Stern, 2015). Policymakers who support the endogenous model believe that the capital investments are done by the government while particular technological aspects are the once responsible for the growth of the economy.

The individual supports who believe in the endogenous model of growth often point out that their various noticeable difference that continues to occur in the economy. These individuals also believe that for the economic growth to be bearable individual should focus on investing in particular areas for example technology (Dietz & Stern, 2015). Despite the fact that the government stresses more on the need to save and the awareness of individual spending. On the endogenous model, individual saving has no impact on capital accumulation. The key factor endogenous model focuses on in order to achieve positive economic growth is to entail individual investment as an emphasis for greater economic growth. According to endogenous model entail accretion when well emphasized could achieve the required revenue to realize growth.

Despite the fact that economist emphasis that when one puts more importance on the endogenous model variables its turns to be evident that the growth model will be more absorbed to the exogenous features of the growth model. However, depending on which model one believes in, may make suggestions that the government should always have the least presence. Even when those who believe in the exogenous model think that the overall government spending has a significant influence on economic growth, a bright assumption using the Keynesian model ought to be considered. When defects and taxes seem harmful to the long-term downfall on the economic (Ludvigson, 2015). According to Ludvigson the government mainly acquires their money from the private sector and in turn, they spend it in the economy which might, in the long run, be counterproductive (Ludvigson, 2015). The fiscal policy mainly should emphasis on programs that little impact to the government performance so that the government may better see and understand the problems in the future of the economy and therefore they can improve the economic model for growth.

When discussing both the endogenous verse the exogenous model their various variables that are overall hard to address unless all factors are taken into critical consideration. Factors such as information, perceived knowledge, production, and human capital collectively have to be taken into consideration. If for example, the government reduces the country spending it would gradually improve the health of the economy. The fiscal policies were never passed to provide subsidiaries to the country economy in the belief of improving the economic state, but they were passed to reduce government spending (Mansell, 2014). If everything can be done correctly, the economy will gradually improve in state at it currently exists in.


Dietz, S., & Stern, N. (2015). Endogenous growth, the convexity of damage and climate risk: how Nordhaus' framework supports deep cuts in carbon emissions. The Economic Journal, 125(583), 574-620.

Ludvigson, S. C., Ma, S., & Ng, S. (2015). Uncertainty and business cycles: an exogenous impulse or endogenous response? (No. w21803). National Bureau of Economic Research.

Mansell, R. (2014). Power and interests in information and communication and development: exogenous and endogenous discourses in contention. Journal of international development, 26(1), 109-127.

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