Q. Explain the classical growth theory?
Production function won't provide us with a theory or explanation of growth. It's only a convenient tool that helps us breaking down growth into its components. Though there are many growth theories which try to go a step further. The oldest of these theories is the so-called classical growth theory that is mainly associated with Thomas Robert Malthus.
Classical growth theory must not be confused with the classical model. Also, the classical growth theory that was developed in the late 1700s, has little or no relevance today. We present it so that you can better understand more modern growth theories.
In brief, the classical growth theory may be defined as follows:
1. Because of technological development, amount of capital increases and marginal product of labor rises.
2. GDP per capita rises. With higher living standards, population will increase.
3. As population increases, labor productivity will fall (more individuals however same amount of capital).
4. GDP per capita will fall again. When GDP per capita has fallen to a level just high enough to keep population from starving, the increase in population would cease.