The Solow Growth Model

Angus Chu

Chapter 9 in Advanced Macroeconomics:An Introduction for Undergraduates, 2020, pp 71-77 from World Scientific Publishing Co. Pte. Ltd.

Abstract: The level of income varies drastically across countries with the richest country being more than 100 times richer than the poorest country in the world. According to the International Monetary Fund, GDP (at purchasing power parity) per capita across countries ranges from about $700 in the Central African Republic to about $130,000 in Qatar in 2018. Suppose we consider two hypothetical countries that have a real GDP per capita of $1,000 in the early 19th century. If one country grows at 1% per year, then after two centuries this country would have a real GDP per capita of about $7,300, which is roughly the income level of India and Vietnam. If the other country grows at 2% per year, then after two centuries this country would have a real GDP per capita of about $52,500, which is roughly the income level of Australia and Germany. Therefore, a small difference in the growth rates accumulated over a long period of time can lead to very large income differences. However, what determines the rate of economic growth…

Keywords: Macroeconomics; Dynamic General Equilibrium; Economic Growth; Endogenous Technological Change; Monetary Policy; Fiscal Policy; Business Cycles; Unemployment; Market Failure; The Neoclassical Growth Model; The Romer Model; The Schumpeterian Growth Model; The Solow Growth Model; The Ramsey Model; The New Keynesian Model (search for similar items in EconPapers)
JEL-codes: E6 E62 E66 F4 F43 O11 (search for similar items in EconPapers)
Date: 2020
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