Thinking and growing: Towards a reconciliation of exogenous and endogenous growth theories

Endogenous growth models consider the stock of R&D (or knowledge) both as a paid input and as an indicator of technical progress. It is shown in this paper that this is inconsistent with core economic theory. In addition, growth eventually stalls in these models unless one assumes increasing returns to scale in all inputs or allows for some exogenous technical progress to occur. This paper shows that neither of these assumptions are necessary to obtain sustained endogenous growth when inputs are properly defined and when a new input is introduced that we call thinking.