The Solow Swan Model : An Economic Model Of Long Run Economic Growth

980 WordsNov 13, 20144 Pages
Qualitative Analysis The Solow-Swan model is an economic model of long-run economic growth in neoclassical economics. The model was developed by Robert Solow and Trevor Swan, independent of each other in 1956. This model is sometimes referred to as simply the Solow model, or the Neoclassical Growth model. The model focuses on four variables: output or GDP, capital, labor, and “knowledge”. The textbook Solow-Swan model is set in continuous time where there is no international or government trade. The Solow-Swan model is originally an extension of the Harrod-Domar model, which is what the two economists Solow and Swan derived their function from. They extended the model by adding labor as a factor of production, and capital-labor ratios are no longer fixed which made the Solow-Swan model stable compared to the unstable Harrod-Domar model. Today the Solow model is used by economists to estimate the separate effects on economic growth of technological change, capital and labor. Additionally, the model has been used to help explain growth differences between countries and help address economic growth issues. Quantitative Analysis There are many assumptions that go into the Solow Model since it is a model in a pure production economy. We assume that all people work all the time, there is no leisure choice.
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