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The Solow Growth Model

In: ADVANCED MACROECONOMICS An Introduction for Undergraduates

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  • Angus C. Chu

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…

Suggested Citation

  • Angus C. Chu, 2020. "The Solow Growth Model," World Scientific Book Chapters, in: ADVANCED MACROECONOMICS An Introduction for Undergraduates, chapter 9, pages 71-77, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9781786349132_0009
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    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;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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