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The neoclassical economic theory of growth was developed by post Keynesian economic theorists. The theory tries to determine the long-run economic changes. The theory incorporates technological growth and formation of capital in determining the economic progress. On the other hand, evolutionary theory approaches economic growth through theorizing the changes in firm’s behavior over a period of time. The theory investigates the historical performance of the economy in order to predict the expected growth. The major difference between the two theories is that neoclassical theory holds that the long-run future economic change translates into economic growth. Based on the evolutionary theory, economic growth is purely uncertain and is determined by the economic environment. Evolutionary theory does not guarantee economic growth and includes a risk factor in its equations (Bergh, 2007).
Both theories view technological advancements as a growth factor in the economic development. Neoclassical model of economic growth views technological growth as the chief driver of economic progress. Conversely, evolutionary theory argues that technological advance does not guarantee economic progress. Technological growth is viewed as an exogenous factor in development of the economy and does not necessarily inspire growth of the economy. Neoclassical economic theory assumes a steady and constant growth frontier for production, income as well as individual worker’s output. The structural evolutionary theory however takes a more diverse approach to growth and focuses on the heterogeneity of the economy. The model theorists argue that individual firms in the economy are faced by different set of facts hence cannot homogenize production growth, output or income growth (Bergh, 2007).
According to Zumbansen and Calliess (2011), there are varying implications drawn from analyzing the two economic growth theories. The structural evolutionary theory holds that in the long-run the exponential growth experienced today will decline to a steady state. The theory therefore implies that in the long-run there will be no economic growth. This can further be explained using a function of production developed by Cobb-Douglas…”