Get complete information on Solow’s model

ADVERTISEMENTS:

Solow postulates a continuous production function linking output to the inputs of capital and labour which are substitutable. Solow shows in his model that with variable technical coefficient there would be a tendency for capital-labour ratio to adjust itself through time in the direction of equilibrium ratio.

If he initial ratio of capital to labour is more, capital and output would grow more slowly than labour force and vice versa. Solow’s analysis is convergent to equilibrium path (steady state) to start with any capital-labour ratio.

Try is able to achieve high rate of growth, its benefit is derived by a small section of its population. This increases inequality of income in the underdeveloped countries leading to political and social problems. Therefore, underdeveloped countries have to concentrate on economic development and not just economic growth.

ADVERTISEMENTS:

In case of developed countries, since all the people have high level of capabilities, benefits of economic growth is distributed among all the people fairly and equally. That is why, in case of developed countries, high level of economic growth leads to decrease in inequality of income which is not the case with underdeveloped countries.

Web Analytics
Kata Mutiara Kata Kata Mutiara Kata Kata Lucu Kata Mutiara Makanan Sehat Resep Masakan Kata Motivasi obat perangsang wanita