Endogenous Growth Mechanisms and Innovation Dynamics

Endogenous growth theory centres on the generation of technological progress from within the economic system rather than through exogenous shocks. It posits that investments in research and development (R&D), human capital and innovation are key drivers of sustained productivity growth. Central to this framework is the concept of knowledge spillovers, whereby ideas created in one firm or sector diffuse to others, lowering the marginal cost of new discoveries and cumulatively enhancing output. Schumpeterian models of creative destruction further emphasise that the process of economic renewal involves incumbent firms being displaced by more innovative entrants, thus embedding competitive incentives in growth dynamics. Complementarity between human capital and R&D expenditure shapes absorptive capacity, enabling economies to internalise foreign technologies and amplify domestic innovation efforts. More recent advances extend this view by modelling the idea production function, which relates research inputs to the rate of technological progress, and by exploring how shifts in the capital intensity of R&D—such as the advent of artificial intelligence tools—reconfigure growth trajectories. These mechanisms collectively explain variation in growth rates across countries, the persistence of inequality in income distributions and the conditions under which economies transition from stagnation to sustained expansion.

Research from Nature Portfolio

No recent Nature Portfolio content available.

Endogenous Growth Mechanisms and Innovation Dynamics publication trend

The graph below shows the total number of articles in endogenous growth mechanisms and innovation dynamics across all publications each year (not limited to Nature Index journals).

Technical terms

Endogenous growth theory: A framework in which long-run economic growth is generated by factors internal to the system, notably R&D, human capital and innovation.

Knowledge spillover: The diffusion of ideas and technological know-how between firms or sectors, leading to cumulative productivity gains beyond the originator’s effort.

Creative destruction: A process in which new innovations replace incumbent products or firms, driving structural change and growth through competitive renewal.

Idea production function: A representation of how inputs such as researchers, capital and knowledge stocks translate into the flow of new ideas or innovations.

Absorptive capacity: The ability of a firm or economy to recognise, assimilate and exploit external knowledge for its own innovation processes.

References

1. Economic impacts of AI-augmented R&D. Research Policy (2024).
2. Entrepreneurship and growth: lessons from an intellectual journey. Small Business Economics (2016).
3. The role of human capital in structural change and growth in an open economy: Innovative and absorptive capacity effects. World Economy (2021).
4. Testing R&D‐Based Endogenous Growth Models*. Oxford Bulletin of Economics and Statistics (2023).