Why does diminishing returns to capital not take place in the AK growth model? Analyse the Lucas model of endogenous growth, bringing out the role of human capital.
Introduction Economic growth models help us understand the drivers of long-term increases in national output and living standards. Traditional neoclassical models, like the Solow model, predict diminishing returns to capital, meaning that each additional unit of capital contributes less to output. However, new growth theories—particularly endogenous growth models—challenge this idea. Two such models are the […]