Endogenous growth

Explanation

Older growth models often treated technological progress as something arriving from outside the economy. Endogenous growth models instead place research inside the model: people and firms invest resources in ideas because they expect a return, and the resulting knowledge raises future productivity.

This distinction separates a level effect from a growth effect. A one-time automation shock can make the economy more productive without permanently changing how fast productivity grows. If AI makes the discovery of useful ideas persistently easier, however, it may raise the rate of technological progress itself.

Faster research does not guarantee permanently faster growth. Ideas may become harder to find, useful discoveries may require scarce experiments or human judgment, and weak incentives or institutions may prevent knowledge from being created and adopted.