Endogenous growth theory or new growth theory was developed in the 1980s by Romer (1986), Lucas (1988), and Rebelo (1991), among other economists as a response to criticism of the neo-classical growth model. The endogenous growth theory holds that policy measures can have an impact on the long-run growth rate of an economy (Wikipedia, the free encyclopedia).
The growth model is one in which the long-run growth rate is determined by variables within the
model, not an exogenous rate of technological progress as in a neoclassical growth model. Jhingan (2006) explained that the endogenous growth model emphasizes technical progress resulting from the rate of investment, the size of the capital stock and the stock of human capital.
In an endogenous growth model, Nnanna, Englama, and Odoko (2004) observed that financial development can affect growth in three ways, which are: raising the efficiency of financial inter-mediation, increasing the social marginal productivity of capital and influencing the private savings rate. This means that a financial institution can effect economic growth by efficiently carrying out its functions, among which is the provision of credit.
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