ABSTRACT
A model of endogenous growth is developed here that complements both orthodox and nonorthodox growth theories. In this chapter, the author attempts to provide an explanation for sustainable “equilibrium” differences in real per capita gross domestic product (GDP), as well as for either transitory or “permanent” differences in growth rates that ultimately cause differences in real per capita GDP. Using the more realistic behavioral assumptions embedded in efficiency wage and x-efficiency theory, the author argues that there are at least two sustainable paths to economic growth. In a word, what the author shows here is that both a low-wage and a high-wage economy can be consistent with a competitive economic regime in the long run. In a word, by only marginally modifying the simplifying assumptions of the Solow model, a model of economic growth is developed that can help explain persistent differences in per capita GDP and rates of economic growth.
