Economic Growth Theories and Models, A section of a...

Literature review Classical Theory of Economic Growth Harrod Domar Growth Model The Neoclassical growth Model Empirical literature 2.1 Theoretical Literature The long history of ideas on economic growth started from the classical economists like Adam Smith, Robert Malthus, Ricardo and Marx. For more than three decades the Neoclassical and the Endogenous Growth theories were arguing and forwarding economic reasons on trend of economic growth through investment as a general and private investment in particular. Though there are various theories, as mentioned above, regarding economic growth, in this section we will address the most commonly applied models: the classical theory of economic growth, Harrod–domar Growth model, The Neoclassical and Endogenous Growth Models. 2.1.1 Classical Theory of Economic Growth The classical economists Adam Smith, David Ricardo and John Stuart Mill were primarily concerned with the dynamics of the economic growth of a capitalist economy. They argued that population growth and capital accumulation are the necessary conditions of growth (Denis and Paul, 2000). The forces of diminishing returns and technological advancements determine the pace of economic growth. Capital accumulation, which itself is determined by the rate of profits, has two effects: it creates demand for labor and it fosters technological improvements by facilitating the division of labor. The population, which tends to grow rapidly, increases the demand for food.Show MoreRelatedBrics, India, China And South Africa1451 Words   |  6 Pages‘Building Better Global Economic BRICs’ (2001). In 2010 South Africa was added to this group of countries because of its increasing economy. Goldman Sachs in its long term outlook in 2009 forecasted that BRICs economy will become as big as th e G7 countries by 2032 and China’s economy will become as big as the US economy by 2027. 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