Endogenous Growth Theory

Recall the Solow Model, one drawback is that technological progress is assumed endogenous (i.e.) , the value of $g$ is given

That means, $\frac{\Delta E}{E}=g$

So the new model would be

Y = K ^ \alpha (LE) ^ {1- \alpha} $$ with

E=k(k=\frac{K}{L})

The ==logic== behind this is when $k$ increases, the economic activities increases, so the society knowledge increases. Which is also called *Learning by doing* As Standard, $\Delta k=sy-(n+\delta)k$ $\Delta k=sk-(n+\delta)k$ $\Delta k/k=s-(n+\delta)>0$ We know: $y=k=>\Delta y/y=\Delta k/k$ In the individual case, the [Solow Model](Solow%20Model.md) can be $y=k^ \alpha$ and the [Endogenous Growth Theory](Endogenous%20Growth%20Theory.md) model can be $y=k$ That can explain why US can grow at 2% per year for a long time