Answer to Question #283726 in Macroeconomics for ABEX

Question

27. There are a number of stylized facts about growth.

(a) Write four of those stylized facts of growth.

(b) Discuss briefly how the Solow model (neoclassical growth model) addresses these stylized facts.

(c) What are the shortcomings of this model?

Answer 1

(a) parts of the national income from the exploitation of labor and capital are approximately constant over long periods of time; the rate of growth of the capital stock per worker is roughly constant over long periods of time; constant growth of real national income and product Y; constant growth of labor L; constant growth of productivity Y/L. 

(b)Stylized facts about growth simply explain the traditional rules of growth saved. The Solow model is more flexible, since it is an analysis of economic growth taking into account the impact of external technological progress, as well as the impact of production factors – capital and labor. There are three main goals of this model: the search for methods of stable and high economic growth, maximizing consumption, analyzing the impact of demographic growth factors and the introduction of new technologies

(c)The Solow model does not explain why there is no convergence between rich and poor countries in reality. The model analyzes the states of stable equilibrium achieved in the long term, while short-term dynamics of production and living standards are also important for economic policy. The model also does not include a number of growth constraints that are essential in modern conditions - resource, environmental, social.