Day 71 – Q 3. This year’s Nobel price has been given for Endogenous Growth theory. Explain Endogenous Growth Theory with the help of examples from India.
3. This year’s Nobel price has been given for Endogenous Growth theory. Explain Endogenous Growth Theory with the help of examples from India.
The endogenous growth theory is an economic theory which argues that economic growth is generated from within a system as a direct result of internal processes. The theory notes that the enhancement of a nation’s human capital will lead to economic growth by means of the development of new forms of technology and efficient and effective means of production.
Central tenants to endogenous growth theory include:
- Government policies ability to raise a country’s growth rate if they lead to more intense competition in markets and help to stimulate product and process innovation.
- There are increasing returns to scale from capital investment especially in infrastructure and investment in education and health and telecommunications.
- Private sector investment in research & development is a key source of technological progress
- The protection of property rights and patents is essential to providing incentives for businesses and entrepreneurs to engage in research and development
- Investment in human capital is a vital component of growth
- Government policy should encourage entrepreneurship as a means of creating new businesses and ultimately as an important source of new jobs, investment and further innovation
- Agriculture- Green revolution using HYV seeds, fertilizers and new cropping methods was an investment in knowledge that helped India be a food surplus country.
- Service sector- Investments in education, private sector research and development helped fuel the service sector economy especially IT and finance to their current level.
- Startups- Government policies encouraging startups and business through ease of doing business is helping in economic growth and GDP boost.
- Innovation- Success of ISRO, India becoming a hub of generic medicines etc was all due to early investment in knowledge and research.
Note- Combine few of the Indian examples with the central tenents of the theory to explain.
Endogenous growth models are nearly impossible to validate by empirical evidence, but history has proven their success. India should aim to keep investing in human capital to achieve the economic growth it strives for.
Best answer: Point Nemo