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The Solow–Swan model or exogenous growth model is an economic model of long-run economic growth. It attempts to explain long-run economic growth by looking at capital accumulation , labor or population growth , and increases in productivity largely driven by technological progress.
In the Solow growth model, a steady state savings rate of 100% implies that all income is going to investment capital for future production, implying a steady state consumption level of zero. A savings rate of 0% implies that no new investment capital is being created, so that the capital stock depreciates without replacement.
Some economists claimed that the Soviet Union missed the lessons of the Solow growth model, because starting in the 1930s, the Stalin government attempted to force capital accumulation through state direction of the economy. However, Solow's calculations have been proven invalid, so this is a poor explanation.
Nobel laureate Robert Solow, credited as the founder of the modern model of economic growth, died on Thursday at the age of 99. Through his writings in the 1950s, Solow challenged traditional ...
Solow and Swan produced a more empirically appealing model with "balanced growth" based on the substitution of labor and capital in production. [59] Solow and Swan suggested that increased savings could only temporarily increase growth, and only technological improvements could increase growth in the long-run. [ 60 ]
The fact that the measured growth in the standard of living, also known as the ratio of output to labour input, could not be explained entirely by the growth in the capital/labour ratio was a significant finding, and pointed to innovation rather than capital accumulation as a potential path to growth. The 'Solow growth model' is not intended to ...
In neo-classical growth models, the long-run rate of growth is exogenously determined by either the savings rate (the Harrod–Domar model) or the rate of technical progress (Solow model). However, the savings rate and rate of technological progress remain unexplained.
In the Solow-Swan model, economic growth is driven by the accumulation of physical capital until this optimum level of capital per worker, which is the "steady state" is reached, where output, consumption and capital are constant. The model predicts more rapid growth when the level of physical capital per capita is low, something often referred ...