Growth Model ;) To know the features of the Solow model is of importance. First, the Solow model is very neoclassic in that it focuses primarily on the supply side. The Solow model implicitly assumes that, as long as supply of goods increases, economic growth can be attained. So, it is very different from Keynesian models of which focus is on the demand side of an economy such as unemployment and in‡ation. Second, the Solow model is a DYNAMIC model (not static). Economic growth by nature contains dynamic aspects, which makes the model complicated. Therefore, we are going to learn the model in steps to cope with the complication. In particular, we …rst study the basic model that has only a capital stock accumulation mechanism. After the basic model, we are going to incorporate new factors, population growth and technology into the model and see how these factors change the results obtained in the basic model. The Solow model is named after an economist Robert Solow. Originally, he came up with the model based on the observation of US data between 1950’s and 1970’s, …nding that (1) savings rates and input factor shares were almost constant, and (2) per capita GDP growth rates were steady. The punch line of the Solow model is thus to systematically explain the two observations (we will soon see this). His work has been in‡uential and thus been followed by a large number of growth models including endogenous and multi-sector models. Robert Solow won the Nobel prize in economics in 1986 due to his contribution to growth theory. The Solow model is simple (no complex math needed), but provides signi…cant implications for economic growth. Therefore, it is the perfect place to start leaning economic growth. Best Regards ;)
Posted on: Thu, 21 Aug 2014 10:28:52 +0000
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