Neoclassical vs Endogenous theory

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kfp22

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In summary, what are the similarities and differences between the two models?
I see that both emphasize on technological advancement
For Neoclassical, it stats that sustainable growth rate is a function of population growth, labor share of income, and technology. But at the same time it says that productivity growth (GDP per capital growth?) is driven only by improvement of technology. <=== is the “sustainable growth” different from “productivity growth”? how come population and labor share of income can affect sustainable growth but not “productivitiy growth” ?
For Endogenous, it also says that investment in technology (R&D) increases growth rate. Then how is it different from Neoclassical?
Thank you
 
A few of my takeaways:
Neoclassical has a sustainable growth rate.
Endogeneous does not. People invest more and growth increases.
Neoclassical’s movements has an increase in technology, which is followed by capital increase to use toward that technology.
Endogeneous movements are led by investment, which leads to technology growth.
 
Thanks a lot pmond. Please excuse my stupidity, I still don’t get the essense of it..
“Neoclassical has a sustainable growth rate.
Endogeneous does not. People invest more and growth increases.”
Endogeneous does not. -> if Endogenous’ growth rate is not sustainable, do you mean that the increase in growth by technology will drop back to a lower level? (Doesn’t investment in technology give permanent increase in growth?)
 
In Endogeneous the growth only increases, yes. What I meant by it not having a sustainable growth rate, I meant there is no equation that tells you where you should be in terms of labor productivity and capital.
IN Neoclassical you have an important equation MPK=r where MPK is the marginal product of capital and r is the cost of capital. If MPK increases through an increase in technology, capital is going to be invested to match it so that MPK = r. And that’s how you know where you are going to be on the curve as shown in the graph on that page.
In Endogeneous there is no equation, no formula. You just have to know that as capital increases, new technology comes along and boosts the GDP growth rate permanently. And I suppose theoretically this can go on forever.

(please don’t apologize, I’m trying to learn here on this forum, just as much if not more than you lol)
 
The main point you want to take away here is that with regards to Capital investment:
Under neoclassical theory, capital deepening has no effect on the long term growth of the economy.
Under Endogenous growth theory, it does.
This can be captured by understanding that in the neoclassical model, there are diminishing returns to capital, whereas in the endogenous model returns to capital can be constant.
Therefore in the endogenous growth theory, as savings increase (savings are closely tied to capital investment), the growth rate can keep increasing.
So if you had a question in the exam that said: “Under which theory would R&D expenditures have a long term impact on growth” it would be Endogenous. The idea being that this form of capital expenditure can actually have an impact on Total Factor Productivity.
Hope that helps.
 
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