The endogenous growth model is one of the many types of economic models used to explain economic growth of different countries of the word. This model holds that the long-run economic growth can be impacted heavily by policy measures (Cyper and Dietz, 2008). For instance, education, research and development as well as subsidies increase the rate of economic growth in some economies because such policies increase the innovation incentives in the economy. The endogenous growth model is a departure from the exogenous growth model because it seeks to explain technological progress and savings rate which remain largely unanswered through the exogenous growth model. The endogenous growth model builds on the explanations of both technological and saving state in the economy.
This is because the endogenous growth model assumes that households maximize their levels of utility depending on their budgets. In the same perspective, firms are also assumed to maximize their profitability subject to the levels of technological and human resources available at their disposal. In this respect, the endogenous growth model emphasizes on human capital and new technology production. Endogenous growth model focuses on greater investment on innovation and greater investment in human resource through education in order to realize higher levels of productivity. The structural growth model assumes that in the long run growth in investment is exogenously determined. In this regard, a sharp focus is directed towards the investment agents in order to determine how such agents make decisions on investments. Japan is one of the developed countries where endogenous and structural growth models have been practiced for along time (Cyper and Dietz, p. 155).
Japanese market stresses on the need for the private sector and government participation in enhancing and nurturing innovation and providing favorable environment for invention by the citizens both domestic and international. Through the provision of free education, the central role of enhancing human capital empowerment and technological advancement among the citizens is undertaken to enhance economic growth. Japan is also one of the countries where the prediction of spill-over effects and positive externalities is undertaken. The main emphasis is on a high level of value-added knowledge base which can be used to maintain the country’s competitive position in industrial growth.
Applying the endogenous growth mode, Japan has been able to achieve higher levels of technical progress by using appropriate policies formulated by the government aimed at raising the growth rate of the country by encouraging higher innovation levels and higher competition levels in the market. Additionally, the endogenous growth model has also been applied in Japan to increase the level of investment in both the public and private sectors in order to increase the economies of scale which reduces the costs of production and increases returns on investments. The endogenous growth model has also been applied in Japan through the emphasis on research and development aimed at enhancing higher levels of technical progress (Cyper and Dietz, p. 157).
The Japanese government encourages research and development in all the sectors of the economy as the central source of key information required to enhance development in all the sectors of the economy. Furthermore, the endogenous growth model has also been widely used in Japan through institution of patents and rights aimed at protecting key innovations and inventions in the economy. Patents and property rights are also used as incentives to both domestic and foreign investors. The role of the government in providing the required incentives makes it possible for different research and development agencies to evaluate the usefulness of different technological inventions in the Japanese market. For example, through research and development companies such as Toyota motors have been able to develop different models of vehicles which suit different market regions worldwide (Cyper and Dietz, p. 163).
As stated above, the endogenous growth model also emphasizes on human capital progress. In Japan, investment in human resource through training and education has been an important element in the country’s economic growth. For example, Japan has numerous technical training institutes as well as formal educational institutions which increase the level of knowledge acquisition. As a result, over 50% of the Japanese population is illiterate. The great emphasis on training and education has increased the invention and innovation levels in the country which make Japan one of the most industrialized nations in the world. In addition to investment on technical training and formal education, other forms of human capital investments include easy access to medical care because it is hard to separate people from their health, skills, knowledge and values (Cyper and Dietz, p.200).
Japan’s growth is also characterized by the structural growth model where the focus of the government is directed towards different agents of investment who are incorporated in the process of formulating key investment decisions. Such agents include research and development agents, industrial investment agents (to mention a few). Such investment agencies are used by the government to provide key information in their sectors which can be used to formulate key policies aimed at enhancing the country’s investment status. Thus, it is evident that the Japanese economy is characterized by both structural and endogenous growth models. The endogenous growth model is largely applied to enhance the level of investment in the public and private sectors.
Works Cited
Cyper, J., and Dietz, J. The process of economic Development, Taylor & Francis, p.640, 2008.