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Solow Growth Model - Essay Example

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Robert Solow used the Cobb Douglas function of production to show that economic growth can still be achieved even if an economy uses exhaustible resources in its production process. He emphasised the importance of capital accumulation and the adoption of modern technology to achieve economic growth, He expressed the aggregate production function as Y =F (L, K, E, D)
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Solow Growth Model
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Download file to see previous pages The second assumption was that if you hold technological progress and D/L is going down as we deplete the resources in a country, K/L may be going up because of capital accumulation, if capital accumulation was allowed to take place in an economy its possible for Y/L to remain constant or even increase and this will lead to economic growth.
If the population remains to grow in the Malthusian version, the Malthusian version is what Malthus discussed what would result from high population, he argued that in the case where population was left to grow without any control measures then this would result to a complete depletion of resources, therefore if the population grows according to the Malthusian version then this dictates that Y/L will eventually approach zero. However if we hold population constant and allow K/L to increase without a limit then Y/L will increase.
If technological progress occurs in an economy such that c is not equal to zero then for any value of c its possible to calculate a growth rate of L that is consistent with Y/L remaining positive, therefore technological progress can compensate for pop...
However if we hold population constant and allow K/L to increase without a limit then Y/L will increase.
If technological progress occurs in an economy such that c is not equal to zero then for any value of c its possible to calculate a growth rate of L that is consistent with Y/L remaining positive, therefore technological progress can compensate for population growth.
Therefore according to Solow the factors that facilitate population growth include capital accumulation and technological progress, this are the factors that determine whether per capita income grows, decline or remain constant. (Scott (1989))
Shortcomings of the Solows model:
The Cobb Douglas function he uses assumes constant returns to scale; also his model assumes that there exists constant elasticity of substitution among the factors of production used in the production process, this assumption allows the standard of living and economic growth to be maintained even if D/L approaches zero as long as K/L rises appropriately.
He also assumes that every generation no matter the distance have similar opportunities with the current one, this is not consistent with human behaviour, and people today only care about their immediate gratification and not for generations to come.

Other theories of economic growth:

The classical school of economist which included Adam Smith, David Ricardo, Thomas Mathus and John Stuart Mill considered the main factors of production which included land, capital and labour but in the absence of technological advancement, they however recognised the role of capital accumulation in economic development and ...Download file to see next pagesRead More
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