What is new growth theory?
The new growth theory is an economic concept, postulating that the unlimited desires and desires of humans promote ever-increasing productivity and economic growth. New growth theory argues that real gross domestic product (GDP) per person will increase perpetually due to the pursuit of people’s profits.
Key points to remember
- The new growth theory assumes that people’s desires and desires will boost productivity and economic growth.
- He argues that the real gross domestic product (GDP) per person will increase perpetually as a result of people’s pursuit of profits.
- The theory emphasizes the importance of entrepreneurship, knowledge, innovation and technology, rejecting the popular view that economic growth is determined by uncontrollable external forces.
- Knowledge is treated as an asset for growth that is not subject to finite restrictions or diminishing returns like other assets such as capital or real estate.
Understanding the new growth theory
The new growth theory has offered a new vision of what the economic prosperity of engineers is. It highlights the importance of entrepreneurship, knowledge, innovation and technology, challenging the view of exogenous growth in the neoclassical economy that economic progress is determined by uncontrollable external forces.
Competition compresses profit, so people must constantly look for better ways to make or invent new products to maximize profitability. This concept is one of the central tenets of the new growth theory.
The theory holds that innovation and new technologies do not just happen by chance. Rather, it depends on the number of people looking for new innovations or technologies and the difficulty with which they seek them. In addition, people also have control over their knowledge capital – what to study, the difficulty of studying, etc. If the incentive to profit is large enough, people will choose to develop human capital and look harder for new innovations.
An important aspect of the new growth theory is the idea that knowledge is treated as an asset for growth that is not subject to finite restrictions or diminishing returns like other assets such as capital or real estate. Knowledge is an intangible quality, rather than a physical one, and can be a cultivated resource within an organization or industry.
Example of a new growth theory
According to the new growth theory, fostering innovation internally is one of the reasons why organizations invest in human capital. By creating opportunities and making resources available within an organization, it is expected that individuals will be encouraged to develop new concepts and technologies for the consumer market.
For example, a large company can allow part of its staff to work on independent internal projects which can turn into new innovations or companies. In some ways, the business allows them to function as startups incubated within the organization. Employees’ desire to launch a new innovation is stimulated by the possibility of generating more profits for themselves and for the company.
This may be particularly true in the United States, as trade is increasingly directed by service-type businesses. Software and application development can take place within companies, in accordance with the new growth theory.
Achieving such knowledge-based growth requires sustained investment in human capital. This can create an environment for qualified professionals to not only have the opportunity to fill their main job, but also to explore the creation of new services that can be useful and useful to the general public.
New growth theorists believe that companies generally undervalue the usefulness of knowledge and, therefore, argue that it is primarily the responsibility of governments to invest in human capital. Governments are encouraged to facilitate access to better education, as well as to provide support and incentives for private sector research and development (R&D).