Economic Development

Activity #2
You are assigned to read Ch 4 - Theories of Economic Growth. As an output of your asynchronous
learning, you are required to identify similarities and differences of at least 4 theories. Use a Venn
diagram to illustrate the comparison.

CLASSICAL GROWTH THEORY

MODERN GROWTH THEORY
Adam Smith and David Ricardo was two of the most known
Offers new ideas on what helps the economy progress theorist of this theory
It gives the importance of entrepreneurship, knowledge and This theory was mostly developed by the British economist during the
innovation industrial revolution
It assumes that desires and wants of population will be the drive for The economist of this theory focuses on the process of economic growth
economic growth and productivity
It explains that the reason of the economic growth is because of the
The modern growth theory
This theory asserts that innovation do not happen by chance investment of profits, division of labor and profits/gains from trades
and classical growth theory
but rather because of people that is seeking for it both took into the
consideration the labor It asserts that individual initiatives would make a great benefits to the
The idea of the modern growth theory is that knowledge is a capital or the human capital
economy
tool for growth and it is infinite in the development of
They mainly focus on the economic growth of a state as a whole
economic growth
Modern growth theorist believe that knowledge is undervalued
and states that the government should invest on human
capital

The classical growth theory and neoclassical growth theory

The modern growth theory and endogenous growth theory
believes that internal factors such as human capital are what
affects the economic growth rather than the external ones
does not share exactly the same characteristics but rather
interconnected ideas such as that classical focuses on the
economic growth as a whole, while the neoclassical focus on
how individual operates in the economy that contribute to the
whole economic growth of the nation

The modern growth theory and endogenous growth theory has the
same idea that investing and improving the human capital of the state
will have a big impact on the economic growth of the state

The endogenous theoryIt emphasize that the economic growth rate is based on the combination of labor,
substitutes the neoclassical
capital and technology
This theory asserts that economic growth comes from the the result of direct in 1980 and questionedRobert
the Solow and Trevor Swan introduced the neoclassical growth theory in
process gaps in wealth of the 1956 through a model of long-run economic growth
It states that improvement of a state’s human capital will result to economic developed and
growth if the technology continues to develop and effective productivity underdeveloped countries if
Thisbetheory asserts that economic growth cannot continue without
the physical capital could
technological advances
a prospect of diminishing
It emphasis that economic growth is a result of internal factors rather than the
returns This theory presumes that the capital and labor are related to one
external
another on how the economy determine its output
Economists believe that improvement of productivity can equal the innovation and
investment on human capital
With the unlimited contribution of technology the economy will continue to
This theory appears in 1980s as a substitute to the neoclassical growth theory progress despite the limited resources of capital and labor

It received a great criticism that it is based on assumptions and cannot be

accurately measured
NEOCLASSICAL GROWTH THEORY
ENDOGENOUS GROWTH THEORY