The Solow model is a neoclassical growth model developed by economist Robert Solow in 1956. It examines how capital accumulation, population growth, and technological progress interact to determine economic growth.
In this model, economic growth is represented by an increase in the stock of capital and productivity gains through technological advancement. It suggests that an increase in investment leads to a proportional increase in capital stock. However, the rate of capital accumulation gradually decreases because of diminishing returns to capital.
Population growth also affects economic growth by increasing the number of people in the workforce, resulting in a growth in output. However, as the population grows, the capital per worker ratio decreases, leading to a decrease in the rate of economic growth.
The Solow model also assumes that technological progress is an exogenous factor that is beyond the control of policymakers. Hence, investments in research and development can lead to productivity gains in the future, which results in a higher level of output.
In summary, the Solow model suggests that economic growth happens due to improvements in technology, capital stock, and labor productivity, the three critical factors that influence growth. Policy interventions can only have a temporary effect on economic growth, and in the long run, productivity and technology advancements are the key determinants of growth.
Solow model growth Model
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