Growth models and limits-to-growth models as bases for public policymaking in economic development

Abstract

This paper analyses several economic growth models to evaluate their usefulness for policymaking. The assumptions underlying some of the simple growth models are questionable and they are narrow in scope. A comparative statics model is broad in scope, but it fails to deal with mechanisms of adaptation and adjustments or with cases of discontinuity, increasing returns, and unlimited growth. The dynamic growth models tend to give undue emphasis to capital and labour. The Malthusian model has proven historically wrong. The Meadows model is broader in scope, but its assumptions are mostly not scientifically established and its use of quantitative data is careless. The above models are also defective because of over-aggregations and under-specifications. They all fail to take fully into account technological and institutional changes, which have been responsible for four-fifths of economic growth in the past and are expected to help overcome the limits to future growth. Needed are models based on an acceptable growth theory, which take into account all basic factors (including technological and institutional changes) as interrelated elements and give adequate attention to the mechanisms of adaptation and adjustments.