What is the SOLOW growth model?

One neoclassical economic model for national economic growth is the SOLOW growth model. Like film franchises, the idea of ​​reducing returns. This means that each subsequent expenses usually make less profit than the one that precedes. It began as a Harrod-Domar model, which was created in 1946 and ran on the basic idea of ​​work and capital affecting the gross domestic product of the country (HDP). Solow, in the 1950s of the 20th century, added to the developing knowledge of human equation, especially in terms of technology. He distinguished between old knowledge and new knowledge. The model assumes that the degree of growth and knowledge growth is constant and assumes that it will triple one variable to triple production. These assumptions are called Constant return to the scale (CRT).

The simple economic frame is derived from the SOLOW growth model. Visual graphics create a graph with work along the horizontal axis and capital along the vertical axis. The interaction between them creates a curved effect. How capital and workE grow from zero, GDP increases rapidly before reaching the center on the graph and starting to leave and creating a finer curve. As this GDP curve shuts down, increased work causes a minor increase in capital.

Growth in the SOLOW growth model is strong when capital accumulates but does not last forever. The model was used to explore how poorer countries catch up with the West. The main examples of the SOLOW growth model are seen in Hong Kong, Tai -wan, Singapore and Japan.

As part of the model prediction, countries such as Japanese work and knowledge base began. This led to a high level of GDP growth in the 50s and 60s, which later slowed down. In the case of Japan, growth stopped completely around 1990, when his financial bubble burst. With Japan, Singapore, Hong Kong and Tai -Wan, Solow was right that the standard of living and GDP would get closer as all variables increased.

model also explains the differences between boHitting and poor countries. Rich countries have more savings and relatively low population growth. Bad countries have a low economical level and a high level of population growth. However, the model also made several false predictions. Based on savings and work, it predicted that the Soviet Union would exceed the United States at the end of the 20th century.

In the SOLOW growth model, several economic factors do not take into account. It will not be possible to explore geography, natural resources, government and social institutions. It also does not expect the effects of aginyg of the population and decreasing labor.