Capital accumulation → positive externalities → self-sustaining growth
★ Must-know
📌 Product innovation creates or improves products, whereas process innovation creates or improves production techniques.
Further detail
Product innovation changes what is produced; process innovation changes how it is produced
📌 Technical progress is the main source of productivity gains through the improvement of total factor productivity.
Innovation → technical progress → productivity gains
Product and Process Innovation
| Type | What changes | Examples |
|---|---|---|
| Product innovation | Products | Smartphones; facial recognition for mobile phones |
| Process innovation | Production techniques | Assembly-line work; computer-assisted production |
Take a 4-question practice quiz on Endogenous Growth and Innovation, with every answer explained.
1. What distinguishes endogenous growth from growth attributed to an external factor?
2. How do endogenous growth theorists explain the continuation of economic growth?
Memorize the key concepts of Endogenous Growth and Innovation with 4 flashcards.
What is endogenous growth in economic theory?
A theoretical model of self-sustaining economic growth.
How do economic agents sustain growth in endogenous growth theory?
By accumulating capital that generates positive externalities allowing indefinite growth.
What does innovation consist of?
Industrial or commercial applications of an invention.
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