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In economics, endogenous growth theory was developed in the 1980s as a response to criticism of the neo-classical growth model.
In neoclassical growth models, growth is exogenous. That is, the source of growth is external to the model (as compared to endogenous growth which originates with a variable within the model). There is some variable - usually "technology" - that grows by assumption. Therefore, neoclassical growth models are able to describe how an economy grows, but not why it grows.
Endogenous growth theory tries to overcome this shortcoming by making growth an endogenous variable. Several competing models have been developed by various authors. Endogenous growth theories usually rely on virtuous cycles. Crucial importance is usually given to the "production" of new technologies and human capital.
In contrast to the older neoclassical growth theory, endogenous growth theory argues that policy measures can have an impact on the long-run growth rate of an economy. Subsidies on research and development or education are generally thought to increase the growth rate.
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