Transcription of 3 Solow growth model - Queen's Economics Department (QED)
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3 Solow growth model - Queen's Economics Department (QED)
Kevin ClintonWinter 2005 Lecture notes 3 Economic growth : Solow model1. IntroductionSolow s classic model is a superb piece of work, everything you could ask of a theory. Ittakes on the biggest questions , what determines standards of living, why somecountries are rich and others poor. The argument is based on standard assumptions, yet itarrives at not-at-all obvious implications. It fits the facts well. So much so that Solow smodel sets the framework for all serious empirical studies of growth and highlights technical change productivity growth as the key to long-rungrowth of per capita income and output. accumulation of capital creates growth in thelong run only to the extent that it embodies improved develop the model , we start with the artificial situation of constant population andconstant technology, and then, in steps, allow population to grow, and technology The steady stateProduction functionThe aggregate production function is:Y = F(K,L)With constant returns to scale we can transform this into a function relating output perworker to capital per = f(k)where y = Y/L, and k = : Per worker production functionAccumulation of capitalThe change in the capit
Accumulation and growth In equilibrium, with a given saving rate, there is no net accumulation of capital, and no growth of output. What if the saving rate goes up? Figure 3.6 Transition to a higher-saving steady state The capital stock rises eventually to a new steady state equilibrium, at k 2*. During the
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