Solow Model Essay

There is a long established tradition of estimating growth models within the economics discipline. Early models took labor as a ‘given’ factor of production, exogenously determined by rates of population growth. There was very little coverage for exploring the human, leave alone the gender, dimensions of growth in these models (Walters, 1995). This changed with the rise of endogenous growth theory and the bigger reputation given to the accumulation of human capital in vibrant growth rates. As conclusions of this, a number of studies have included gender dissect versions of human capital, mostly substituted by gender differences in educational attainment, in their models. Interest in

Several studies have supported human capital as a significant source of economic growth. Barro(2004) ,empirical analysis, based on 98 countries from 1960-1985, uses school-enrolment rates as representations for human capital, supported the convergence hypothesis of neoclassical growth models, and says; if poor countries have high human capital than they tend to catch up with rich countries, but only in relation to level GDP per capita. Further stated; ‘As a related matter, countries with high human capital have low fertility rates and high ratios of physical investment to GDP’.

This research paper is an empirical investigation comparing the economic growth of Australia, China and the United States. It covers four topics which include the production model, the Romer model’s growth rate

' Technology is not a single unique entity and thus it is unlikely to have a single unique effect. The effects of technology will depend critically on what type of technology is consumed, how much is consumed and for how long it is consumed.'

What does the AK growth model lead you to expect about the relative growth of rich and poor countries?

Through analysing the data presented by Penn Wharton at the University of Pennsylvania, one can find that the capital labour ratio has stayed on the projected trend from pre-1980. This shows a steady growth of the average worker’s productivity and wages, as stated in the article. From this we can say that, at even the

Simon believes that the population growth does not have effect on the economic growth. Positive effects on people have productivity by creating and applying new knowledge. Simon then uses statistical data on how developed countries have larger population and have produced more great number of scientist and scientific knowledge produced. The relationship between population growth and economic growth is that the country’s economy can grow because of the growing population. Faster population growth causes faster growing industries to lead to faster growth of productivity. Also, a bigger market is implied from a larger population and it brings bigger manufacturers, which may produce less expensive goods and be more efficient than smaller ones. Simon believes that additional people have a positive effect on per capita income and outcome is a myth. The only measure of scarcity is from economic cost of goods. People regenerate Knowledge of our capacity of limited raw material and Simon argues that the more people there are, the better it is for our

In an augmented model, rather than treating technology as constant across countries, Romer incorporated knowledge spillover effects. Each unit of investment in capital did not only increase physical capital, but increased availability of knowledge to the whole economy, because private knowledge was correlated with public knowledge . Another model by Robert Barro and Xavier Sala i Martin incorporated varying levels of technology based on region, with knowledge diffusing slowly from areas with high levels of technology to those with low levels . This led to convergence being predicted largely by the rate of diffusion of knowledge, based on the ability for poorer states or countries to imitate ideas and technologies. A third model developed by Greg Makiw, David Romer, and David Weil proposed not a change in the way the model viewed technology, but added another term: one for accumulation of human capital in addition to physical capital . In this augmented Solow model, rates of education were used as a measure for investment in human capital. Education alone is an imperfect measure of human capital. However, there are limitations involved with the practicalities of analyzing data in these models. Thus, Mankiw et al used secondary school attendance, and inclusion of human capital improved the performance of the Solow model

The definition of economic growth is the amalgamation of labor, capital and technological change. As people living in modern societies, one can see that they contribute to this growth with their everyday economic decisions such as investing, consuming and saving. Although one can clearly see the way this affects microeconomics, it brings into the question how one's everyday decisions affect the larger scale of macroeconomics. Robert Gordon, an economist wrote in one of his highly acclaimed papers about the long history of U.S. economic growth, furthermore linking periods of slow and rapid growth to three industrial revolutions: steam and railroads; electricity and the internal combustion engine; and the recent advent of computers, the internet and mobile phones. Although modern society have grown economically, he claims that if we continue to innovate as rapidly we are, the total economic growth may be substantially lower than the average growth between 1860 and 2007. Although technology economically helps people dramatically, it is still not enough to offset the overall pullback from rising income inequality, falling labor force participation rates, lack of widespread education and changing demographic structures. Thus leading to those who are single having to work 2 times harder to simply survive in current and future

10. Labor force growth rates tend to fall as a country becomes richer. Compared with the standard Solow growth model, this would lead to: a. b. c. d. Higher saving rates in rich countries than in poor countries. Greater income differences between rich and poor countries. Smaller income differences between rich and poor countries. Lower depreciation rates in

According to the Solow Growth Model, all countries will eventually converge to their long run steady state. If we consider the usual assumptions, of countries producing the same goods with the same constant returns to scale production technology, using (homogenous) capital and labour as factors of production, differences in income per capita income will reflect differences in per capita capital. Therefore, essentially if capital is allowed to flow freely, new investments should occur only in the poorer economy. However this is certainly not the case in reality. Most of the net capital flow in the past four decades has been north-to-north (rich countries investing in other rich countries), rather than north-south (rich economies investing

Economic growth means the increase in the real GDP over time. It can be caused by an increase in an aggregate demand or aggregate supply. However, long-term economic growth mainly results from an increase in aggregate supply for instance increased capital, etc. Growth accounting is the tool to estimate the contributions from various sources to economic growth. It is the growth of GDP explained by weighted growth rates of other variables. It should be cleared that the growth rates of other variables need not to be the final explanation of GDP growth (Holz, 2008). It is given by: ΔY/Y=ΔA/A + α.ΔK/K + (1-α) ΔL/L. How long run aggregate supply impact growth is shown below.

Eyeballing any cross sectional data on growth across countries shows that countries grow at different rates. Many theories try to explain this phenomenon with emphasis with capital accumulation being one of them. I will start by developing the standard neoclassical growth model as developed by Solow(1956)[1]. I will then proceed to discuss the extensions that have been made to this basic model in an attempt to better understand actual growth figures, for e.g. the standard neoclassical model cannot explain the magnitude of international differences in growth rates. Mankiw[2] points out that “the model can explain

This can be measured by the following formula; Per capita nominal GDP = Nominal GDP / Population, Per capita real GDP = Real GDP / Population. Seven factors determine economic growth. Natural resources such as land, mineral deposits, waterways; climatic conditions provide an essential foundation to economic growth. Combined with the other resources of capital, labor and enterprises, natural resources can be developed and organized to increase the productive capacity if the nation. Consequently the quality and size of the labor force is a major determinant of economic growth. Education and vocational training are essential the growth potential of a nation. The promotion of education and job training schemes increase the knowledge, skills and flexibility of the workforce that contributes to potentially higher levels of productivity and efficiency. Whether from natural increase or immigration population growth can cause a higher level of economic growth. An increasing population requires increased public spending on housing, education and other social needs while businesses expectations of

The growth models considered in Chapter 2 are highly aggregative and some economists (Lewis 1954; Fei and Ranis 1961, 1964; Jorgenson 1961, 1967; Dixit 1968, 1971; Kelly et al. 1972) began to analyse the problems in terms of two sectors, namely agriculture and industry. Briefly, the socalled traditional noncapitalist agricultural sector is supposed to be unresponsive to economic incentives and here the leisure preferences are imagined to be high; production for the market does not take place and producers apparently do not follow profit-maximizing rules: ‘disguised’ or open unemployment is supposed to prevail throughout the rural sector and indeed the marginal productivity of labour is expected to be