Learn Growth Theory: The Solow Model

We explain the causes of long-run differences in income over time and between countries through a theory of economic growth called the Solow model. We will see that an economy's level of savings, population growth and technological progress determine an economy's output and growth rate. We first examine how the level of savings and depreciation determine the accumulation of capital, holding the labor force and technology fixed. We then relax these assumptions and show the role of technological progress and population growth in the determination of per-capita income.

1. The Production Function

2. Constant Returns To Scale

3. Switching to Per-Worker Quantities

4. The Per-Worker Production Function

5. Marginal Product of Capital

6. Consumption and Investment

7. Capital Depreciation

8. Change in the Capital Stock

9. Convergence Towards the Steady State

10. How the Savings Rate Affects Growth

11. Comparing Steady States

12. The Golden Rule Level of Capital

13. The Saving Rate and the Golden Rule

14. The Transition to the Golden Rule Steady State

15. Population Growth

16. A Change in the Population Growth Rate

17. Technological Progress and the Efficiency of Labour

18. Technology and Growth

19. Conclusion