StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

Solow Growth Model - Essay Example

Comments (0) Cite this document
Summary
SOLOW GROWTH MODEL Institution Tutor Date Introduction Economic growth is defined as increased capacity of a country’s economy to produce goods and services in comparison to a previous period and is measured by the gross domestic product (Song, 2009, p…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER95.8% of users find it useful
Solow Growth Model
Read TextPreview

Extract of sample "Solow Growth Model"

Download file to see previous pages Solow Growth Model is a standard neoclassical model of economic growth developed by Robert Solow. This model holds that economic growth is linked to capital accumulation and the population growth (Zhuang and St Juliana, 2010, p. 65). Solow growth model postulates that under equilibrium, the level of per capita income is determined by prevailing technology, rates of saving, rate of population growth and technical progress all which are assumed exogenous (Barossi-Filho, 2005, p. 37). Given that the rates of population growth and levels of saving are varying across countries, the model gives testable predictions on assessing how the two can influence economic growth of countries. Solow model has been criticized by different theorists given the assumptions made by this theory. This paper will explain the impacts of both population growth and increase in the saving rates upon economic growth. Moreover, the paper will explain how Solow model accounts for technological progress and assess whether Romer model improves on this. Impact of both population growth and an increase in the savings rate upon economic growth Increased production of goods and services leads to economic growth. In the light of this statement, any country that desires to achieve economic growth must have optimal factors of production (Song, 2009, p. 7). The factors of production include capital, labor, technology, land and entrepreneur. When these factors are optimized economic growth of the country will be positive. Solow growth model predicts that economic growth results from accumulation of capital and population growth rate (Zhuang and St Juliana, 2010, p. 65). Moreover, the model starts by making an assumption of capital accumulation is subject to diminishing returns (Stein, 2007, p. 193). Solow model argues that developing countries with low capital stock can achieve higher economic growth compared to developed countries by increasing their savings and investment rates. Solow model postulates that increased rates of savings leads to capital accumulation. The theory behind increased savings resulting in capital accumulation is that higher savings leads increased amount of funds that can be offered as credit for capital investment. Consequently, this borrowed capital will be invested in the production industry and therefore the gross domestic products will be higher (Song, 2009, p. 9). Investment is required for the development of infrastructure required for production. However, Liu and Guo (2002, p. 25) argues that economic growth of a country depends on its ability to deploy the savings to finance capital investment. In the Solow model, the second factor identified to influence economic growth of a country is its population growth. Population provides an important factor of production; labor and consequently as population grows it adds to the available labor it contributes to economic growth of any country. However, given the rule of diminishing returns on factors of production it is necessary to strike equilibrium between the labor and other factors of production (Song, 2009, p. 10). The combined effect of impact of increased rates of saving and population growth can be understood using the Solow model. This model offers testable predictions since these two factors are different across nations. Song (2009, p. 9) argues that countries having high saving levels usually have higher per capita incomes while those experiencing high population growth have lower per capita inco ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Solow Growth Model Essay Example | Topics and Well Written Essays - 1500 words”, n.d.)
Retrieved from https://studentshare.org/macro-microeconomics/1444484-using-the-solow-model-explain-the-impact-of-both-i
(Solow Growth Model Essay Example | Topics and Well Written Essays - 1500 Words)
https://studentshare.org/macro-microeconomics/1444484-using-the-solow-model-explain-the-impact-of-both-i.
“Solow Growth Model Essay Example | Topics and Well Written Essays - 1500 Words”, n.d. https://studentshare.org/macro-microeconomics/1444484-using-the-solow-model-explain-the-impact-of-both-i.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Solow Growth Model

International Economic Growth: Japanese Post-War Economic Miracle

The state, which had lost during the war almost 40 % of its wealth, which has haven’t any raw material sources, was completely cut off the exterior raw market. It has been destroyed about 30 % of basic industry equipment. After numerous bombing, Nagasaki and Hiroshima have been almost purely ruinous. The capital of the country, Tokyo, has stayed in ruin. There has been demobilized about 9 million soldiers, moreover, 1.5 million people have entered the country as refugees. Inflation has reached 5000 %. There has been an overall shortage of goods and materials. There has been a great dearth. The value of the yen to the dollar has been constantly falling down that has evidenced that the financial system of the state has been co...
6 Pages(1500 words)Case Study

Black and Scholes Model

For this reason, it has been supported by Leslie (1997, 4) that “many discussions in the literature get bogged down in the mathematics of Black Scholes valuation when they go beyond the conceptual level; however managers dont need to be deeply conversant with the calculation techniques of real-option valuation”. The particular model can be found in the Appendix section. It should be noticed in any case the Black-Scholes model has originally developed for the pricing of options. However, its potential use in different sectors at the next stage cannot be rejected. As for the potential use of the specific model in the energy sector, this could be considered as rather difficult to be completed mostly because this model wou...
11 Pages(2750 words)Assignment

Lockheed Martin as a Model for Ethics in an Organization

Lockheed Martin (LM) had been focusing on petty issues like how to respond to a chain letter from the supervisor or how to deal with an employee who steals his child’s school supplies from the company (Guenther, 2000). They did not allow whistle blowing and there no ethical codes of conduct laid down. In 1997 McDonnell Douglas hired an engineer away from LM who carried with him all proprietary documents. Later that year McDonnell Douglas merged with Boeing, rivals to LM and in 2005 LM and Boeing decided to merge their space-rocket business and came into agreement to drop their litigation over the stolen rocket-contract information (Gates & Mundy, 2006). They could be barred from defense contracts and denied export licens...
6 Pages(1500 words)Term Paper

Growth Performance of Indian Economy

This percentage is expected to rise to 70% by 2030 - the largest in the world, according to a report titled Destination India- from the Investment Commission of India.” (Hood).
We all know that for more than a century, the United States has been one of the largest economies in the world. However the past few years showed major development in some countries, and the focus moved to Asian countries like India and China which were progressing very fast.

According to the experts, share in the total world GDP of India will rise from 6% to 11% by the year 2025. The GDP of India rose to 9.0% during the year 2005-06 again to 9.4% in 2006-07. The projection reports say that India will be 60% the size of the US economy...
6 Pages(1500 words)Assignment

HR Model That Can Measure if It Adds Value

There has been a change of approach in the way that labor is reviewed in the organization and the modern perception emphasizes viewing labor as an investment and not as a commodity or resources. In this regard, labors have started to be seen as a made of creative and innovative social being who is able to give the organization a competitive edge. (Michael 2006, p. 42)
The term human resource has been changing to broader management and the concept of human capital has been applied more often in place of human resources. Therefore the modern perception of human labor has been changing the way organization have been handling their human capital to a more liberalized way. It has been realized that having a competitive workforce c...
13 Pages(3250 words)Assignment

The Role of Telecommunications in Growth

If information is significant to advancement, then telecommunications, as a way of sharing information is not only a relationship between people, although a connection in the sequence of the advancement processes itself. The role of telecommunications in broadcasting information can be predominantly important in rural regions where other methods of acquiring and transmission information for instance personal contact, transport, and postal services are expected to be less available.
Distance signifies time, in an all the time more time-conscious world. In economies that rely forcefully upon agriculture or the mining of resources, remoteness from urban markets has usually been improved only with the setting up of enhanced trans...
23 Pages(5750 words)Assignment

The Growth of the Service Industry

The expansion of the service sector has unquestionably generated economic prosperity, but it has eminently contributed to social injustice and inequality. Consequently, I believe that while the growth of the service industry has great economic intuition, it is eventually socially detrimental and distancing society from achieving paradigms of social equilibrium.
Service, by definition, is the exchange of a commodity that has no tangible form; whereas industry is described as the people or organizations engaged in a particular type of enterprise. The service industry is then simply defined as an aggregation of commercial entities that provide services rather than physical objects. The non-material nature of services can be dist...
9 Pages(2250 words)Case Study

Innovation and Growth

Although there is a large amount of literature about innovation in organizations, there is very little on the management style that should promote innovation. (Amar, 2002, p. 14) While innovation is a subject that has evoked keen interest, it is also a subject that has failed to uncover the secrets of what fires innovation in an organization. Researchers have focused on three major areas in relation to innovation in an organization.
For example, the adverse external environment has been found to encourage creativity and innovation. This, along with organizational structure, is likely to play a role in determining the level of innovation that exists in an organization. A study by Russell(1990) has revealed that innovation requ...
14 Pages(3500 words)Coursework

Capital Asset Pricing Model and Recent Developments

It is the most essential aspect of any venture. The important considerations that finance has within it, is that of profit and loss. The business as a whole or a person as an individual always strives to earn a profit. To earn a profit, one has to undertake uncertainties that are known as risks. Therefore, profit is also known as the reward for incurring risks.
In the present world of today, the capital market has come up as a viable investment opportunity for individuals all across the globe. People invest their hard money only with the expectation to earn profit or return. The stocks of various companies that are traded in the capital market are also known as capital assets. Prior to investing in any of the stock or capital...
7 Pages(1750 words)Assignment

Global Employee Information and Consultation: Replicating the European Model

...Global Employee Information and Consultation: Replicating the European Model INTRODUCTION The only way for the employees and their representatives to reach the level of multinational corporations is to create an effective transnational mechanism that facilitates consultation and information disclosure. The European model (EWC) is an example of an institution that intends to provide employees voice in the transnational arena. The information dissemination and consultation arrangement enable employee representatives to participate in discussing issues that pertains to their employment. However, there is a need to analyze whether EU style of legislating a mechanism shall be effective if replicated globally. The answer in part depends...
9 Pages(2250 words)Coursework
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Solow Growth Model for FREE!

Contact Us