7. Tying It All Together: A Comparison of Growth Theories
The following table summarizes and compares the core features of the three main growth paradigms.
| Feature | Neoclassical (Solow-Swan) Model | AK Model | Schumpeterian Model |
| Primary Driver of Long-Run Growth | Exogenous technological progress (unexplained). | Endogenous capital accumulation (including knowledge). | Endogenous quality-improving innovations (R&D). |
| Role of Diminishing Returns | A central limitation that chokes off growth from capital alone. | Assumed away by defining “capital” broadly. | Overcome by the continual creation of new, more productive technologies. |
| Can Policy Affect Long-Run Growth? | No. Policy can only affect the level of income, not its long-run growth rate. | Yes. Policies that affect the saving and investment rate can permanently change the growth rate. | Yes. Policies that affect the incentives to innovate (e.g., patent laws, competition) change the growth rate. |
| Prediction on Convergence | Conditional Convergence: Poorer countries catch up if they have the same fundamentals. | No Convergence: Rich and poor countries grow at the same rate, so gaps persist. | Club Convergence: Some countries innovate and converge to the frontier growth rate, while others may stagnate and fall behind. |
| Role of “Creative Destruction” | No role. The model does not feature firm turnover or obsolescence. | No role. All “capital” is treated as a single, homogenous stock. | Central concept. Growth is driven by new technologies making old ones obsolete. |