The solow model in discrete time fundamental law of motion of the solow model. The lecture notes are in no way intended as a substitute for the textbook. Developed a macroeconomic model that allows for a decomposition of gdp into. Solows growth model is a unique and splendid contribution to economic growth theory. Daron acemoglu mit economic growth lecture 4 october 30, 2014. The solow model is consistent with the stylized facts of economic growth. The overriding goal of the course is to begin provide methodological tools for advanced research in macroeconomics. Endogenous growth theory lecture notes for the winter term 20102011 ingrid ott tim deeken november 5th, 2010 kit university of the state of badenwuerttemberg and national laboratory of the helmholtz association wipo. The solow model of economic growth macroeconomics is not a onesize tsall type of eld. This implies growth can come about from saving and investment or from improvements in productive e ciency. Solows growth model most modern dynamic models of macroeconomics build on the framework described in solows 1956 paper. This lecture looks at a model examining role these two elements play in achieving sustained economic growth. Paczkowski rutgers university lecture 4 modern growth theories spring semester, 2009 5 116. Notes on growth theory, ec750 david schenck boston college, department of economics may 18, 2012.
However, they are also useful in the calibration procedure for the purpose of choosing a good measuring device. Lecture 4 modern growth theories spring semester, 2009 7 116. The lecture notes are meant to be read along with the textbook. We use this model to analyze various questions about economic growth. A contribution to the theory of economic growth, qje. The argument is based on standard assumptions, yet it.
The solow model recall that economic growth can come from capital deepening or from improvements in total factor productivity. The solow growth model is an important part of many more complicated models setups. The neoclassical growth model differs from the solow growth model in incorporating consumer optimization. In chapter 3, we presented the solow growth model, an example of exogenous growth. So, if you think about it, in this model there are 2 components of the ln a term. Romer model combining the simple solow and romer modelsmalthusian modelreferences our simplest neoclassical solow growth model implies a growth rate for capital. Solow model of growth presented by anmol kumar sharma robert merton solow is an american economist particularly known for his work on the theory of economic growth that culminated in the exogenous growth model named after him.
The global north and the global southwhy the divide. Robert solow macroeconomist professor at mit nobel prize 1987 important contributions. Some parts of the lecture notes are alternative presentations of stu. Economic growth is often measured in terms of level, or growth rate, of gross domestic. Lecture notes on modern growth theories part 1 mario tirelli very preliminary material. It introduces dynamics and transitions into aggregate economy. Empirics of the solow model macroeconomics ii econ6395. The solow model believes that a sustained rise in capital investment increases the growth rate only temporarily. Output per capita decreases with the growth rate of the population.
Macroeconomics solow growth model solow growth model solow sets up a mathematical model of longrun economic growth. Macroeconomics 2, 20182019 solow growth model, mathematical notes version 3 april 20. Acemoglu, introduction to modern economic growth, princeton university press, 2009. Main implications of the solow model longrun growth of output per capita possible only with technological progress but. Though, solows model is basically embedded in a different setting, yet its concept of technical coefficient provides elegant and simple theoretical apparatus to solve the problems of underdevelopment.
Mapping the model to data introduction solow growth model and the data use solow model or extensions to interpret both economic growth over time and crosscountry output di. Intermediate macroeconomics lecture 3 the solow model zs o a l. Solow model solow, 1959 is the starting point of the most dynamic macroeconomic theories. Omer ozak solow model macroeconomic theory ii 19 142. National laboratory of the helmholtz association wipo. Solow growth model develop a simple framework for the proximate causes and the mechanics of economic growth and crosscountry income differences. It also allows for a constant in the growth of ln q. Endogenous growth theory lecture notes for the winter term 20102011. This handbook is designed with the structure of ec750 in mind.
However, the marginal product of additional units of capital may decline there are diminishing returns and thus an economy moves back to a longterm growth path, with real gdp growing. Solow growth model and the data use solow model or extensions to interpret both economic growth. Solow model fails to explain in a satisfactory way the great disparities in output levels and growth rates 2. The model is also due to robert solow, whose work on growth accounting we discussed in the last lecture, and was rst presented in his 1956 paper \a contribution to the theory of economic growth. The solow growth model and looking ahead centralized dictatorial allocations. Advanced macroeconomics the solow model micha l brzozabrzezina marcin kolasa warsaw school of economics micha l brzozabrzezina marcin kolasa wse ad. Trying to grasp reality with both hands since 1999. Start with a production function that has two arguments. So a large amount of the di erences in output across countries must be driven by di erences in aj t. Mankiw says of this model, the solow growth model shows how saving, population growth, and technological progress. Implications savings rate s has no effect on the longrun growth rate of gdp per capita increase in savings rate will lead to higher growth of output per capita for some time, but not forever.
Solowswan model named after robert bob solow and trevor. Long run growth and the solow model malthus accurate prior to 1800 because of agricultural economy. Intermediate macroeconomics lecture 4 growth models. Solowswan model of economic growth1956 what drives an increase in gdp per capita in a long run. Intermediate macroeconomics lecture 4 growth models beyond solow zs o a l. Solow growth model start with the simplest model of growth, which we will use as a base with which to build bigger, 5 richer models. Lecture notes we say that the technology is neoclassical. Technical change and the aggregate production function. Introduction these lecture notes cover a onesemester course.
Solow growth model market structure, endowments and market clearing market structure, endowments and market clearing i. Not to be circulated without permission of the author. Daron acemoglu mit economic growth lectures 2 and 3 november 1 and 3, 2011. R is homogeneous of degree m in x 2 r and y 2 r if and only if g. In section 1, we will describe the basic assumption about economy, such as production function, labor force and capital accumulation. Given assumptions about population growth, saving, technology, he works out what happens as time passes. In these notes, we consider a model that explains the role these two elements play in generating sustained economic growth.
Intermediate macroeconomics lecture 3 the solow model. Lecture 4 modern growth theories rutgers university. Introduction solow s classic model is a superb piece of work, everything you could ask of a theory. Chapter 2 the solow growth model and a look ahead 2. Solow growth model and the data use solow model or extensions to interpret both economic growth over time and crosscountry output di erences. The economy, the households and the social planner. Understanding the solow economic growth model tutor2u. Introduction solows classic model is a superb piece of work, everything you could ask of a theory.
It would be a duanting task to even attempt to construct a model that explained all interesting macroeconomic phenomena, and any such model would undoubtedly be complicated and unwieldy, making it di cult to. Introduction facts are essential in economics as they allow us to test theory. The bulk of this paper is devoted to a model of longrun growth which accepts all the harroddomar assumptions. Solow growth model the economic environment of the basic solow model. We rst list several key assumptions regarding the models setup. The solow model in discrete time relating prices and interest rates p t is the price of the nal good at time t. Lecture notes in macroeconomics growth, part 1 miscellaneous preliminaries. Output per capita increases with the investments made.