The agenda for growth theory: a different point of view

It is argued here that the basic assumptions of neoclassical growth theory inherently limit the ability of models within that theory to cast light on economic growth as we have experienced it. This holds for 'the new growth theory' as well as the older growth theory of the 1950s and 1960s. It is proposed that to make real headway with understanding economic growth, a growth theory needs the following elements: (1) the ability to treat technological advance as an essentiallly disequilibrium process; (2) to incorporate a theory of the firm in which firm capabilities and differences across firms are central elements; and (3) to incorporate into the theory a richer body of institutions than currently are treated in standard growth theory, including, at the least, universities.