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l lead to an additional increase in output. Models with endogenous technological change therefore, exhibit increasing returns to scale, changes in the saving rate and therefore in the rate of capital formation can have permanent effects on the long run equilibrium growth rate of output. Therefore, with endogenous technological change and increasing returns to scale, policies that affect the saving rate and thus the rate of capital formation will affect the long run equilibrium growth rate of output. Many government policies have potential effects on these variables. (Froyen 1996)

Endogenous growth theory emphasizes the interaction between the products of ideas, investment in physical capital and investment in human capital (education, skills and technology) to explain why poor country cannot instantly boost their standard of living up to the level of rich countries, because, it takes many years to investment in physical and human capital for the ideas developed in the rich countries to benefit the poor countries. (Gordon 2000 p.313)

In this theory technology, diffusion plays a central role in the process of economic development. In contrast to the traditional growth framework, where technological change was left as an unexplained residual, the recent growth literature has highlighted the dependence of growth rates on the state of domestic technology relative to that of the rest of the world. Thus, growth rates in developing countries are, in part, explained by a ‘catch-up’ process in the level of technology. In a typical model of technology diffusion, the rate of economic growth of a backward country depends on the extent of adoption and implementation of new technologies that are already in use in leading countries. (Borensztein, De Gregorio et al. 1998)

Technology diffusion can take place through a variety of channels that involve the transmission of ideas and new technologies. Imports of high-technology products, adoption of foreign technology and acquisition of human capital through various means are certainly important conduits for the international diffusion of technology.(Grossman and Helpman 1990; Borensztein, De Gregorio et al. 1998)

According to endogenous growth theory, globalization also plays important roles in diffusion of technology. Here, the role of globalization in economic growth can be investigated through two important implications of globalization. using the neoclassical growth model often suggest that the gains from integration are small. If these estimates were calculated in the context of an endogenous growth model, integration might be found to be much more important.(Rivera-Batiz and Romer 1991)

Trade globalization plays important role in this theory, since each country can concentrate on developing the ideas to produce a few new goods and then trade them with other countries. When the concept of idea is applied broadly, it helps explain not only the introduction of new goods but also the development of better production techniques and higher quality in order goods. Most of these ideas would not work without associated investment in physical and human capital.

In these models, openness to trade provides access to imported inputs, which embody new technology; increases the effective size of the market facing producers, which raises the returns to innovation; and affects a country's specialization in research-intensive prod