3 Solow growth model Queens Economics （3索洛增长模型女王的经济学）.pdfVIP

Kevin Clinton Winter 2005 Lecture notes 3 Economic growth: Solow model 1. Introduction Solow’s classic model is a superb piece of work, everything you could ask of a theory. It takes on the biggest questions—e.g., what determines standards of living, why some countries are rich and others poor. The argument is based on standard assumptions, yet it arrives at not-at-all obvious implications. It fits the facts well. So much so that Solow’s model sets the framework for all serious empirical studies of growth and productivity. Solow highlights technical change—i.e. productivity growth—as the key to long-run growth of per capita income and output. Accumulation of capital creates growth in the long run only to the extent that it embodies improved technology. To develop the model, we start with the artificial situation of constant population and constant technology, and then, in steps, allow population to grow, and technology to improve. 2. The steady state Production function The aggregate production function is: Y = F(K,L) With constant returns to scale we can transform this into a function relating outp ut p er worker to cap ital p er worker. y =f (k) where y = Y/L, and k = K/L. Figure 3.1: Per worker production function y Diminishing MPK k Accumulation of capital The change in the capital stock per worker (known as cap ital deep ening) is equal to per worker gross investment minus depreciation: