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Endogenous growth


Economic growth where the growth rate is determined by the choices of economic agents. Firms expend resources on research and development to secure profitable innovations. Consumers invest in education to develop human capital and increase lifetime earnings. Governments increase growth by providing public inputs, encouraging foreign direct investment, and enhancing educational opportunities. All these actions can raise the rate of growth. This is contrasted with exogenous growth, where the long-run growth rate is determined from outside the system by an exogenously given rate of ’technical progress. In either case short-run growth can be increased by additional investment. In exogenous growth this increase is only transitory: growth gradually falls towards an exogenously determined long-run rate. In endogenous growth higher investment, or the devotion of more resources to research and development, can increase the rate of growth for an indefinite period.


Reference: Oxford Press Dictonary of Economics, 5th edt.