Endogenous growth theory or
new growth theory was developed in the 1980s by Romer (1986), Lucas (1988), and
Rebelo (1991), among other economists as a response to criticism of the
neo-classical growth model. The endogenous growth theory holds that policy measures
can have an impact on the long-run growth rate of an economy (Wikipedia, the
free encyclopedia).
The growth model is one in which the long-run growth rate
is determined by variables within the
model, not an exogenous rate of
technological progress as in a neoclassical growth model. Jhingan (2006)
explained that the endogenous growth model emphasizes technical progress
resulting from the rate of investment, the size of the capital stock and the
stock of human capital.
In an endogenous growth model, Nnanna, Englama, and
Odoko (2004) observed that financial development can affect growth in three
ways, which are: raising the efficiency of financial inter-mediation, increasing
the social marginal productivity of capital and influencing the private savings
rate. This means that a financial institution can effect economic growth by
efficiently carrying out its functions, among which is the provision of credit.