Compare and contrast the Solow Growth Model with one Endogenous Growth
Model
In order to compare two models of economic growth, I will look at the
primary model of exogenous growth, the Solow model, and ArrowÂ’s
endogenous growth theory, based on research and development generated
within the system. I will define the models and identify their
similarities and differences.
The Solow model, or Neoclassical growth model as it is sometimes
known, is an example of exogenous growth models. This is to say that
the level of economic growth depends on externally determined rates of
growth in certain variables. The Solow model was devised to show the
relationship between the inputs of labour (L), capital (K) and
knowledge (A) on the output level (Y). these are modelled as a
function of time, which does not directly feature in the model:[IMAGE].
Therefore an example of this would be the Cobb Douglas function
F(K,AL) = Kα(AL)1-α, 0<α<1
Output will only change if the values of the inputs change. For
instance, given a fixed level of capital and labour, output will only
grow if there is technical progress, that is the value of
technological change, A, changes. Because technology is introduced
into the function as multiplying L, it is known as labour augmenting
or Harrod neutral. This is distinct from capital augmenting: Y(t) =
F[A(t)K(t),L(t)] and Hicks Neutral: AY(t) = F[K(t),L(t)].
Some assumptions are made concerning this function. Firstly, AL is
defined as effective labour; this will become an important concept
later. The economy is assumed large enough so that all improvements
from specialisation have been exhausted, and the only inputs that are
of any importance are labour, capital and labour. Combining these
assumptions, the nature of the production function is such that it
exhibits constant returns to scale. The production function can now be
illustrated in its intensive form
[IMAGE]
Inputting the Cobb Douglas function mentioned earlier, the intensive
form of the production function is [IMAGE].
The variables k and y are not of interest in their own right; instead,
they help us gain an idea into how the main variables interact. This
method is akin to dividing the economy into AL pieces. As a result, we
can look at the quantity of capital per unit of effective labour and
its impact on output per unit of effective labour, as opposed to being
overly concerned with the overall size of the economy.
f(k) is assumed to satisfy that f(0) = 0, f’(k)> 0 and f”(k) <0.
this means that the marginal product of capital is positive, but it
declines as the level of capital rises , i.e. there is diminishing
marginal product of capital.
The Poole Model is a macroeconomic model where its main objective is to answer the discussion on whether monetary policy should be conducted using a money-supply rule or an interest-rate rule when managing the economy. In the Poole Model, the Central Bank’s objective is to minimize the loss function:
Oded Galor and David N. Weil’s work, From Malthusian Stagnation to Modern Growth describes three different regimes on society including population, GDP per capita, family, and lifespan. They are the Malthusian model, the Post Malthusian model, and the Modern Growth Era model. The first of these three was the Malthusian model, developed by Malthus in the late 18th century, the Modern Growth is what we have today, and the post Malthusian model is the transition between the two ends of the spectrum.
To begin many theories hold a number of assumptions about the markets, but neoclassical takes this to an extreme. NGT assumes that there is full employment, no externalities or transportation costs and perfect competition just to name a few from the slew of others. This large amount of assumption is one reason why Romer established EGT in his 1986 dissertation (Fine) . These assumption are numerous and rather important in an economy and to assume all of these things it starts to take away from its real world application. Endogenous growth theory seeks to explain many of the assumptions that NGT hold constant. One such assumption is that technology is a constant and steady
Robert E. Lucas Jr.’s journal article, “Some Macroeconomics for the 21st Century” in the Journal of Economic Perspectives, uses both his own and other economist’s models to track and predict economic industrialization and growth by per capita income. Using models of growth on a country wide basis, Lucas is able to track the rate at which nations become industrialized, and the growth rate of the average income once industrialization has taken place. In doing so, he has come to the conclusion that the average rate of growth among industrialized nations is around 2% for the last 30 years, but is higher the closer the nation is to the point in time that it first industrialized. This conclusion is supported by his models, and is a generally accepted idea. Lucas goes on to say that the farther we get from the industrial revolution the average growth rate is more likely to hit 1.5% as a greater percentage of countries become industrialized.
Similar to Craft (2004b), Craft (2004a) uses a similar method to explore the effects the steam engine had on labor productivity growth. The difference between these two pieces is that Craft (2004a) studies the short-term effects that the steam engine had on productivity growth since he focuses only during the Industrial Revolution. However, both pieces explore the steam engines impact on growth by focusing on the contribution to growth of productivity. Craft (2004a) analogous to Craft (2004b) uses an embodied innovation growth accounting context (p.525). Craft (2004a) explains that technology contributes to growth in two ways. Technology can first contribute to growth by increasing the productivity by the fact that new technology is more beneficial
The End of Growth, by Richard Heinberg, goes into deep discussion of the current state of the economy and the its future state when growth ceases. Richard Heinberg discusses current trends within the economy that predict our eventual result. The author makes it very clear that growth is important. As a society, and a planet, we depend on growth. However, certain types of growth, specifically economic growth, are on a path to destruction. He suggests that we find a different definition of growth and focus on that instead of growing from an economic standpoint. Throughout the book, Heinberg uses the image of a balloon to describe our situation. He depicts our society as a balloon that is getting pumped up to be too large and will eventually pop. In other words,
Smith’s theory of economic growth can be formulated in a simple algerbraic equation. Where G equals the growth rate, K equals the ratio of productive to unproductive labor, P equals the productivity rate and W equals the real wage:
This essay will then evaluate the key studies within these two models and explain the strengths and weaknesses of the main theories.
(C1) Many agree with Summer on his stance of high-pollution industries in lesser-developed countries. They claim that it is economic logic to fill the countries with low wages with profitable industries. By doing this, it would cause more people to want to live in a less populated area and work for higher wages. A sudden increase in population would also increase the number of the labor force. By doing this, more workers and industries would rapidly affect the growth of the economy.
Review of: Olson, Matthew S., Van Bever, Derek ,Verry, Seth. 2008. When Growth Stalls. Harvard Business Review, 51-62.
A production Function in general, without specifying what kind, is related to the output of a production process which starts which starts with the factors of production. The production functions are an integral part for explaining marginal products as well as allocative efficiency. There are different classifications for production functions, and what constitutes them, determined by the type of production. This article of the WIKI aims to focus on the Substitional production function, explaining what it is and means, as well as the limitational, doing the same. (1)
Human population growth is becoming a huge issue in our world today. The population is increasing rapidly. The reason that it is becoming a concern is because it has affected the economic, environmental, and social aspects of our world. In the film Frontline: Heat, we can see how there might not be a future for our planet unless we are able to reduce the emissions and make our world a safe place. Not only for the present but also for future generations so that they are able to live long and healthy lives.
Theoretical model of modern economic growth shows that long-term economic growth and raise the level of per capita income depends on technological progress. This is because of without technological progress and with the increase of capital per capita, marginal returns of capital would diminish and output per capita growth would eventually stagnate (Solow, 1956; Swan, 1956). Studies have shown that “experience, skills and knowledge in the long-term economic growth is playing an increasingly important role” (World Bank, 1999). Despite how technological progress work on economic growth, and how there are different views on the role of in the end, but I am afraid no one would deny that technical progress in the important role of economic development. In this sense, for a country to achieve long-term economic growth, we must continue to promote technological progress. However, economic growth theory is analyzed in general, and usually under the assumption that in the closed economy, and technological progress in a country not normally have taken place in various departments at the same time, and now the economy are often increasingly open economy. In this way, the technological progress in different economic impact on a country may be quite different. In addition, we assume that technological progress is Hicks neutral, is to an industry in itself, but technological progress also reflects the establishment of new industries and development. The new industries and technology-intensive industries generally older than the high, the use of less labor. Even the old industries, the general trend of technological progress is labor-saving.
Economic growth is one of the most important fields in economics. In current generation economic is developing well. Economic growth is really important to country and for the world as well. Economic are one of the identity for country because it shows a country development and attraction for other countries (F, Peter. 2014). For example well economic develop such as Singapore, Dubai, New York, and Japan. These countries are well develop and maintaining their economic growths. Economic growths are really important because higher average incomes enables consumers to enjoy more goods and services. Then, lower unemployment with higher output and positive economic growth firms tend to utilize more workers creating more employment. Enhanced public
The example used above (which demonstrates increasing opportunity costs, with a curve concave to the origin) is the most common form of PPF. It represents a disparity, in the factor intensities and technologies of the two production sectors. That is, as an economy specializes more and more into one product (such as moving from point B to point D), the opportunity cost of producing that product increases, because we are using more and more resources that are less efficient in producing it. With increasing production of butter, workers from the gun industry will move to it. At first, the least qualified (or most general) gun workers will be transferred into making more butter, and moving these workers has little impact on the opportunity cost of increasing butter production: the loss in gun production will be small. However, the cost of producing successive units of butter will increase as resources that are more and more specialized in gun production are moved into the butter