| Abstract : | Since the second half of the 1980s new models of economic growth have began to appear in the literature. In these models one of the traditional assumptions of the neoclassical approach, constant return to scale, is replaced by an assumption of increasing returns. These models, of great popularity in recent years in an academic circles, go under the generic name of “endogenous growth models”, as growth is generated by processes and variables that are determined within the model itself, unlike the neoclassical model where there is an exogenous technology parameter that determines the steady-state growth rate. The implication of these models is that many factors which under the neoclassical model only affect the level of income, now have an effect on its growth rate. The interesting is that a series of aspects which economic- policy specialists have always identified as determinants of the growth rate, now come to have theoretical foundation (for example the rate of saving, taxes, foreign rate distortions, etc). The purpose of this essay is to show that endogenous growth models provide a powerful and flexible engine of analysis that can be used for studying not only economic growth but also many other related phenomena. In the following chapters we show that these simple models can fruitfully be extended and generalized in many different directions to address many different questions that in fact they contain the beginnings of a vast and exciting research program.After a review of earlier theory, including the AK model, in chapter 1, we proceed with the presentation of a basic Schumpeterian model in chapter 2 and we study the effects of market structure on economic growth. This chapter is important not only because creative destruction provides a new view of the process of competition, but also because it deals with a misleading and potentially embarrassing implication of simpler endogenous innovation growth models. That is, to the extent that competition limits the ability of a successful innovator to capture monopoly rents from his or her innovations, it will be harmful to growth. The chapter shows that natural extensions of the simple early models produce several different mechanisms through which an opening up of competition can stimulate growth despite this appropriability problem.Chapter 3 surveys some of the more important and recent results on the literature on fiscal policy and growth, in the endogenous growth context. Given the enormous amount of literature, we concentrate on infinite horizon representative agent models with one and two productive sector, considering also the case of imperfectly competitive markets. Chapter 4 examines the interactions between growth and education. We explore first the point of view that education and human capital affect productivity under a fixed technology, and study the related phenomena of development traps and stratification. We then take the point of view put forth by Nelson and Phelps(1966) to the effect that education and human capital are more important for producing technological change than for producing output under a given technology, and show among other things how more education can have ambiguous effects on the degree of wage inequality.In chapter 5 we show how introducing environmental limitations into endogenous growth theory can clarify the notion of sustainable development. Indeed, endogenous growth theory is ideally suited for studying the problem of sustainable development, in as much as it is primarily concerned with how growth can be sustained in the face of the ever-present threat of diminishing returns.In chapter 6 we overview the most relevant theoretical contributions of the literature for the analysis of open economies. The literature is divided into three major classes, studying respectively, the effects of factor mobility, the role of international trade, and the consequences of technology diffusion. We also examine the issue of dynamic comparative advantage through a model that provides a strong link between comparative advantage and the patterns of trade between countries
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