Neo-Classical Growth Theory

Discipline: Economics

Forming part of the broader neo-classical theory, neo-classical growth theory is an analytical framework in which emphasis is placed on the easy substitution of labor and capital in the production function to generate a steady-state of growth, and where all variables are growing at a constant, proportionate, rate.

This steady state eliminates the instability of the Harrod-Domar growth model.

Neo-classical growth models identify the sources of growth as technical progress and population increases, with capital accumulation determining the capital-to-labor ratio in the steady state.

Source:
J E Meade, A Neoclassical Theory of Economic Growth (London, 1962)

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