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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 mid-1980s, a group of growth theorists became increasingly dissatisfied with common accounts of exogenous factors determining long-run growth, such as the Solow–Swan model. They favored a model that replaced the exogenous growth variable (unexplained technical progress) with a model in which the key determinants of growth were explicit ...
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 ...
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 ...
The Ramsey-Cass-Koopmans model does not have dynamic efficiency problems because agents discount the future at some rate β which is less than 1, and their savings rate is endogenous. The Diamond growth model is not necessarily dynamically efficient because of the overlapping generation setup. In a competitive equilibrium, the growth rate may ...
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.
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 ]
In 1957, Solow applied his model to data from the U.S. gross national product to estimate contributions. This showed that the increase in capital and labor stock only accounted for about half of the output, while the population increase adjustments to capital explained eighth. This remaining unaccounted growth output is known as the Solow Residual.