New Directions in Theory and Policy
Edited by Phillip Arestis, Michelle Baddeley and John S.L. McCombie
3. 1. What is endogenous growth theory? Mark Roberts and Mark Setterﬁeld INTRODUCTION Over the last 20 years, the term ‘endogenous growth theory’ has entered and become prominent in the parlance of both economists and policy makers alike. A keyword search for ‘endogenous growth’ in the Journal of Economic Literature’s EconLit database reveals 153 records during the period 1985–90, increasing to 843 records 1991–95 and 2402 records 1996–2005, illustrating the increasing prominence of the phrase in academic literature.1 In terms of policy making, few will forget (much less allow him to forget) then-Shadow Chancellor Gordon Brown’s reference to ‘post-neoclassical endogenous growth theory’ in a 1994 speech. Moreover, the rhetoric of political speeches aside, the idea of endogenous growth seems to have had a very real impact on policy making over the last decade. For example, inﬂuenced by endogenous growth theory (or at least a particular variant of it), the UK Treasury has identiﬁed certain ‘key drivers’ of national and regional growth and has set speciﬁc performance targets relating to these drivers.2 But what exactly is endogenous growth theory? The purpose of this chapter is to investigate this question in detail. We begin, in Section 2, by identifying two deﬁnitions of endogenous growth theory and by contemplating both the intellectual pedigree of endogenous growth theory and the distinction between supply-led and demand-led growth processes. Section 3 is largely devoted to an examination of neoclassical endogenous growth theory, whilst Section 4 explores its Keynesian...
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