Economic growth
Endogenous growth theory

Unsatisfied with the assumption of exogenous technological progress in the Solow–Swan model, economists worked to " endogenize " (i.e., explain it "from within" the models) productivity growth in the 1980s. The resulting endogenous growth theory, most notably advanced by Robert Lucas, Jr. and his student Paul Romer, includes a mathematical explanation of technological advancement. This model was notable for its incorporation of human capital, which is interpreted from changes to investment patterns in education, training, and healthcare by private sector firms or governments. Notwithstanding the implications this component has for policy, the endogenous perspective on human capital investment emphasizes the possibility for broad-based effects which can be realized by other firms in the economy. Accordingly, human capital is theorized to deliver increasing rates of return unlike physical capital. Research done in this area has focused on what increases human capital (e.g. education) or technological change (e.g. innovation). The quantity theory of endogenous productivity growth was proposed by Russian economist Vladimir Pokrovskii. It explains growth as a consequence of the dynamics of three factors, including the technological characteristics of production equipment. Without any arbitrary parameters, historical rates of economic growth can be predicted with considerable precision.

On Memorial Day weekend in 1988, a conference in Buffalo brought together influential thinkers to evaluate the conflicting theories of growth. Romer, Krugman, Barro, and Becker were in attendance along with many other high profiled economists of the time. Amongst many papers that day the one that stood out was Romer's "Micro Foundations for Aggregate Technological Change." The Micro Foundation claimed that endogenous technological change had the concept of Intellectual Property imbedded and that knowledge is an input and output of production. Romer argued that outcomes to the national growth rates were significantly affected by public policy, trade activity, and intellectual property. He stressed that cumulative capital and specialization were key, and that not only population growth can increase capital of knowledge, it was human capital that is specifically trained in harvesting new ideas.

While intellectual property may be important, Baker (2016) cites multiple sources claiming that "stronger patent protection seems to be associated with slower growth". That's particularly true for patents in the ethical health care industry. In effect taxpayers pay twice for new drugs and diagnostic procedures: First in tax subsidies and second for the high prices of diagnostic procedures treatments. If the results of research paid by taxpayers were placed in the public domain, Baker claims that people everywhere would be healthier, because better diagnoses and treatment would be more affordable the world over.

One branch of endogenous growth theory was developed on the foundations of the Schumpeterian theory, named after the 20th-century Austrian economist Joseph Schumpeter. The approach explains growth as a consequence of innovation and a process of creative destruction that captures the dual nature of technological progress: in terms of creation, entrepreneurs introduce new products or processes in the hope that they will enjoy temporary monopoly-like profits as they capture markets. In doing so, they make old technologies or products obsolete. This can be seen as an annulment of previous technologies, which makes them obsolete, and "destroys the rents generated by previous innovations". A major model that illustrates Schumpeterian growth is the Aghion–Howitt model.
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