Economic growth: should policy focus on investment or dynamic competition?

Purpose – Societies highly value economic growth because economic growth results in increase in societal standards of living. This paper addresses the issue of why economies grow and what public policy makers should favor in order to increase economic growth. Design/methodology/approach – This paper reviews and contrasts the two major, rival ways to account for economic growth: the neoclassical model, which maintains that growth results from increases in investment, and the dynamic competition model, which maintains that growth results from the innovations that stem from the process of competition. Findings – The paper finds that the dynamic‐competition model, as represented by resource‐advantage (R‐A) theory, best explains economic growth. Practical implications – Public policy should focus on promoting R‐A competition in order to foster economic growth. Originality/value – This issue of which approach best accounts for economic growth is important because the two approaches imply very different decisions in the public policy arena.