Endogenous Growth: Valuable Advance, Substantive Misnomer

Endogenous growth theory has made many valuable contributions, perhaps most notably in providing the tools that permit more effective empirical investigation of the growth process. Its one shortcoming, which is stressed here, is its inability to live up to its name, for where it has failed is in describing the wheels, the balance springs, and the interactions of the various other critical components of the mechanism that drives the growth process. This is no criticism because that is not the legitimate task of macroeconomics, one of whose prime virtues lies in judicious suppression of such complicating details in order to permit a better grasp of the overall workings of the economic machine. Such details are the task of the microeconomist, whose work must supplement the macro insights so that, together, we will obtain a fuller understanding of the growth process and how it may be improved.