The Solow Growth Model with one Endogenous Growth Model

Comparison of Solow Growth Model and Endogenous Growth Model In order to compare two economic growth models, based on the internally generated research and development system, the main model of exogenous growth, Solow model and endogenous of Arrow I will study growth theory. . Define the models and determine their similarities and differences. The Solow model, or sometimes known Neoclassical growth model, is an example of an exogenous growth model. This means that the level of economic growth depends on the external growth rate of certain variables.

The Romer model is a model of endogenous growth by Paul Romer ("endogenous technical revolution", "Journal of Political Economy", 1990), which began accepting the results of the Solow model. In other words, the progress of technology determines the output of each worker. Long term growth However, unlike the Solow model, Romer tries to explain the factors that determine the advancement of technology. Paul Romer (Romer, 90) says that: "The growth of this model is brought about by changes in technology, not agents that maximize profits, the global market will have a large population that increases growth rates and is not enough to produce growth."

Economists dissatisfied with the hypothesis of extrinsic technological progress in the Solow-Swan model strive to improve productivity "endogenously" (ie "interpret" from the model) in the 1980s. That name is Robert Lucas, Jr. And his student Paul Romer suggested, including a mathematical explanation of technological progress. This model also incorporates the concept of new human capital that enables workers to have productive skills and knowledge. Unlike physical capital, the return on human capital is getting higher and higher. Research in this field focuses on factors that enhance human capital (eg education) or technological change (eg innovation).

In parallel with the Solow model, another modern growth theory, endogenous growth theory considers technology as endogenous. Technological change is the result of public and private investment in human capital, knowledge intensive industries such as ICT and telecommunications. The endogenous growth theory can be explained by the basic equation Y = AK of the Harrod-Domar model. Where A is an arbitrary factor that affects technology and K includes material and human capital, taking educational investment into account. Investment in human capital and physical capital can create positive externalities for the external economy, increase labor productivity, thereby offsetting the decline in revenue and achieving long-term sustainable growth . Unlike the Solow model, income per capita does not reach the natural convergence of developing countries even with similar savings and population growth rates.