Question

what is the diffrence between neoclassical growththeory and new growth theory

Answer 1

Traditional neoclassical growth models, which assume exogenous and universal technological progress and diminishing returns to capital accumulation, predict convergence of countries to the same steady-state rate of growth and level of income and capital per person, with initially poor countries catching up but not overtaking the leaders. For instance, they can readily provide a rationale for why Britain's lead in the 19th century would have been whittled down over time, but offer no direct way of addressing why Britain actually fell behind.

By contrast, endogenous growth models, in which productivity growth is the outcome of incentive structures that may differ across countries, entertain the possibility of persistent divergence in growth performance and thus of the overtaking of one country by another or of ever-widening gaps between leaders and followers.

The root of this difference is their treatment of technical change and returns to capital accumulation. The neoclassical treatment of technical change is exogenous, while the endogenous model’s treatment is, well, endogenous.