Recent Development in Growth Economics

For the first time in 30 years, questions of macroeconomic growth have again gained in importance. The main interest now centers on a reformulation of the theoretical foundation. The crucial impetus for rethinking growth theory has come from the persistence of growth differentials between poor and rich countries, differentials that could not be explained satisfactorily by the neoclassical growth theory. Moreover, the traditional theory does not provide guidance for policy makers. In the neoclassical growth model, long-term per-capita income growth is mainly the result of technical progress, which is interpreted as a process that is independent from market forces and cannot be influenced by economic policy. The new growth theory does not question the importance of technological change for long-term growth, but tries to explain those microeconomic forces that propel technical progress. These insights have helped to put growth analysis on a more solid theoretical basis.