The need for an evolutionary approach to growth theory

The issue then is this. Following upon the discovery that there was a large liresidual” involved in neoclassical explanations of economic growth, and the identification of that residual with technical change, economists undertook a considerable amount of research aimed toward pinning down what technical change actually is. Th is is just what happened after physicists discovered the neutrino. But what we now know about technical change should not be comforting to an economist who has been holding the hypothesis that technical change can be easily accommodated within an augmented neoclas­ sical model . Nor can the problem here be brushed aside as involving a phenomenon that is “small” relative to those that are well handled by the theory; rather, it relates to a phenomenon that all analysts (or virtually all) acknowledge is the central one in economic growth. The tail now wags the dog. And the dog does not fit the tail very well. The neoclassical approach to growth theory has taken us down a smooth road to a dead end. If an evolutionary appro ach has advan­ tages as a way of analyzing traditional textbook questions, the argu­ments for such an approach to growth theory seem overwhelming.

Source: Nelson Richard R., Winter Sidney G. (1985), An Evolutionary Theory of Economic Change, Belknap Press: An Imprint of Harvard University Press.

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