Growth Theory

Abstract

In this chapter, the authors discuss how the modern thinking of growth starts from the classicists. To the classical economists, limitedness of resources is the limit to growth. Neo-classicists transplanted the natural resources with the producible means of production – capital. Limitedness of resources is removed but it is replaced by the limitedness of operational structure – the firm size. The result is the diminishing returns to capital1 that shape the frontier growth. New growth theorists introduce the concept of generating “ideas” – involving human endeavour with its intellect. This is human capital – the seed of unlimited growth. However, this main story does not cover sharper niceties that are of paramount human interest. Issues of inequality and sustainability are some of these. This chapter is not any encyclopedic attempt. It only tries to cover some of the basic dynamics into which man has fashioned to understand his own destiny.