Neoclassical Growth Theory.....

Neoclassical growth theory is an economic theory that outlines how a steady economic growth rate results from a combination of three driving forces—labor, capital, and technology..... The National Bureau of Economic Research names Robert Solow and Trevor Swan as having the credit of developing and introducing the model of long-run economic growth in 1956. The model first considered exogenous population increases to set the growth rate but, in 1957, Solow incorporated technology change into the model.

•     Robert Solow and Trevor Swan first introduced the neoclassical growth theory in 1956.

•     The theory states that economic growth is the result of three factors—labor, capital, and technology.

•     While an economy has limited resources in terms of capital and labor, the contribution from technology to growth is boundless.

How the Neoclassical Growth Theory Works

The theory states that short-term equilibrium results from varying amounts of labor and capital in the production function. The theory also argues that technological change has a major influence on an economy, and economic growth cannot continue without technological advances.

Neoclassical growth theory outlines the three factors necessary for a growing economy. These are labor, capital, and technology. However, neoclassical growth theory clarifies that temporary equilibrium is different from long-term equilibrium, which does not require any of these three factors.