Modern growth theory

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Chapter 6 in The Economics of Prosperity, 2023, pp 132-157 from Edward Elgar Publishing

Abstract: Adopting the epistemology and method of the natural sciences has hamstrung modern development theory with significant epistemological problems. Human action and entrepreneurship have been expunged from economic analysis. Modern growth theory arose during the Keynesian episode. The Harrod-Domar model, Solow growth model, and endogenous growth theory all suffer from various types of scientism. Modern growth models are often used to assert an investment or technology gap that can be filled by foreign aid. Economic history refutes the idea of a poverty trap keeping all poor nations in a cycle of poverty. In constructing rarified mathematical models, emphasizing measurement, and attempting to socially engineer economic expansion, modern growth economists succumb to several false mechanical analogies of scientism, all of which give little space to human action. Mathematical models, for example, while good at describing equilibrium conditions and comparative statics, are of no help in describing the market process exhibiting dynamic efficiency. Such models fallaciously take capital as homogenous, rather than an intertemporal structure, and ignore the connection between entrepreneurship and economic progress. Modern growth theory has providing elegant equilibrium conditions, but has failed, by itself, to provide much helpful guidance for establishing policy that will indeed foster sustained economic progress.

Keywords: Economics and Finance (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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