Exogenous Growth

Published Mar 5, 2023

Definition of Exogenous Growth

Exogenous growth is a type of economic growth that is driven by external factors, such as technological progress or population growth, rather than by internal factors, such as investment or savings rates. In other words, exogenous growth is not caused by efforts made by people but rather by external factors that affect the economy as a whole.

Example

For example, technological progress is a major driver of exogenous growth. Technological advancements can lead to the creation of new industries, products, and services that were not previously available, increasing productivity and generating economic growth. The development of the internet and mobile devices over the past few decades is a prime example of exogenous growth driven by technological progress and has transformed the way people live and work around the world.

Similarly, population growth can also contribute to exogenous economic growth. As populations grow, there is typically an increase in demand for goods and services, leading to higher levels of economic activity. However, it is important to note that population growth alone may not be sufficient to sustain long-term economic growth without other contributing factors, such as productivity growth.

Why Exogenous Growth Matters

Exogenous growth is important because it can provide a significant boost to an economy’s overall productivity and economic performance. However, it relies on external factors that may not necessarily continue indefinitely, meaning that it may not be a sustainable source of economic growth over the long term. The use of more traditional methods to promote economic growth, such as increasing investment in education and infrastructure or improving productivity levels, therefore remains a critical consideration for policymakers seeking to drive long-term economic growth.