Exogenous growth is a model based on neoclassical economic theory that suggests economic growth is propped up by any outside forces that are independent of economic variables. This model focuses on a variety of elements that contribute to sustained economic growth, including production, diminishing returns of capital, savings rates, and technological variables. Although the exogenous growth model and endogenous growth model both focus on the role of technology within the economic system, the former views technological progress as separate from the economic environment, making it a key factor in long-term economic growth.

The driving concept behind exogenous growth is that human knowledge can be used and improved upon to create new products, processes or services. As people are able to come up with new and better ways to produce goods and services, economic growth is facilitated. In contrast, the endogenous growth model takes into consideration the forces within the economic system when theorizing about economic growth, suggesting that forces stemming from economic activities can create an environment where technological progress occurs.

Exogenous growth theory is predicated on the concept of diminishing returns of capital, meaning that beyond a certain point, the amount of output produced won’t increase at the same rate of capital investment. In order to accomplish sustained increases in GDP, the rate of technological progress must increase enough that the decreasing returns of capital become insignificant. This is achieved through human ingenuity, creativity, and the utilization of new technologies that increase efficiency and productivity.

The exogenous growth model is used in tandem with the endogenous growth model to more accurately predict and measure economic growth due to its emphasis on technological progress independent of environmental forces. This model allows economists to better understand the relationship between capital investment, production, savings, and technological variables to determine better macroeconomic policies and spur economic growth.