Endogenous growth theory

Growth theory advanced again with the theories of economist Paul Romer in the
late 1980s and early 1990s. Other important new growth theorists include Robert
E. Lucas and Robert J. Barro.
Unsatisfied with Solow's explanation, economists worked to "endogenize"
technology in the 1980s. They developed the endogenous growth theory that
includes a mathematical explanation of technological advancement. This
model also incorporated a new concept of human capital, the skills and knowledge
that make workers productive. Unlike physical capital, human capital has
increasing rates of return. Therefore, overall there are constant returns to
capital, and economies never reach a steady state. Growth does not slow as
capital accumulates, but the rate of growth depends on the types of capital a
country invests in. Research done in this area has focused on what increases
human capital (e.g. education) or technological change (e.g. innovation).
Theories of economic growth, the mechanisms that let it take place and its main
determinants abound. One popular theory in the 70's for example was that of the
"Big Push" which suggested that countries needed to jump from one stage of
development to another through a virtuous cycle in which large investments in
infrastructure and education coupled to private investment would move the
economy to a more productive stage, breaking free from economic paradigms
appropriate to a lower productivity stage.
Analysis of recent economies' success shows a close correlation between growth
and climate. It is possible that there is absolutely no actual mechanism between
the two, and the relation may be spurious. In early human history, economic as
well as cultural development was concentrated in warmer parts of the world, like
Egypt.
According to Acemoglu, Johnson and Robinson, the positive correlation between
high income and cold climate is a by-product of history. Former colonies have
inherited corrupt governments and geo-political boundaries (set by the
colonizers) that are not properly placed regarding the geographical locations of
different ethnic groups; this creates internal disputes and conflicts. Also,
these authors contend that the egalitarian societies that emerged in colonies
without solid native populations, and which could be exploited by individual
farmers led to better property rights and incentives for long-term investment
than those where native population was large, and together with the tropical
climate, colonizers were led to plunder and ruin, and to create exploitative
institutions, a situation which did not foster growth or private property
rights. Colonies in temperate climate zones as Australia and USA did not inherit
exploitative governments since Europeans were able to inhabit these territories
and set up governments that mirrored those in Europe. It is important to note
that Sachs, among others, do not believe this to be the case.