Question

What are basic differences between neoclassical growth theory and New growth theory?

Answer 1

1. Neo classical models consider external factors to predict the economic growth. But New growth theory consider internal factors to predict the economic growth.

2. Neo classical theory identifies the capital level per worker and the effectiveness of labour both as the ability to create permanent growth in the per capita stock per labour of the economy. Whereas new growth theory does not introspects this. It only state that the factors of effective human capital.

3. Neoclassical theory predicts only conditional convergence which states that only two economic has the same savings rates, same production function, same rate of technology progress etc. Whereas new growth theory states that there will be no convergence dynamics towards steady state level of production.