Discuss the neoclassical theory of economic growth. Do it's assumptions hold for modern day economic growth?. Explain ?

The neoclassical theory of economic growth, also known as the Solow-Swan model, is a widely accepted framework for understanding long-term economic growth. The theory is based on the assumption that economic growth is driven by the accumulation of physical capital, technological progress, and population growth. According to the neoclassical theory, an economy will reach a steady state where the growth rate of output per capita is determined by the rate of technological progress and population growth.

One of the key assumptions of the neoclassical theory is that markets are perfectly competitive and that resources are allocated efficiently. This assumption may not hold in modern day economic growth, as markets are often imperfect and resources are not always allocated efficiently. In addition, the neoclassical theory assumes that technological progress is exogenous, meaning that it is determined outside of the economic system. However, in reality, technological progress is often endogenous, meaning that it is influenced by economic factors such as investment in research and development.

Furthermore, the neoclassical theory does not take into account factors such as human capital, institutions, and government policies, which can also play a significant role in driving economic growth. For example, investments in education and training can lead to higher levels of human capital, which can in turn lead to higher levels of productivity and economic growth.

In conclusion, while the neoclassical theory of economic growth provides a useful framework for understanding long-term economic growth, its assumptions may not fully hold in modern day economic growth. It is important to consider a broader range of factors, such as human capital, institutions, and government policies, in order to fully understand the drivers of economic growth in the modern economy.