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The Solow–Swan model is an exogenous growth model, an economic model of
long-run economic growth set within the framework of neoclassical economics. It
attempts to explain long-run economic growth by looking at capital
accumulation, labor or population growth, and increases in productivity,
commonly referred to as technological progress. At its core it is a
neoclassical aggregate production function, usually of a Cobb–Douglas type,
which enables the model "to make contact with microeconomics". The model was
developed independently by Robert Solow and Trevor Swan in 1956, and superseded
the post-Keynesian Harrod–Domar model. Due to its particularly attractive
mathematical characteristics, Solow–Swan proved to be a convenient starting
point for various extensions. For instance, in 1965, David Cass and Tjalling
Koopmans integrated Frank Ramsey's analysis of consumer optimization, thereby
endogenizing the savings rate—see the Ramsey–Cass–Koopmans model.
## Conditional convergence
The Solow–Swan model augmented with human capital predicts that the income
levels of poor countries will tend to catch up with or converge towards the
income levels of rich countries if the poor countries have similar savings
rates for both physical capital and human capital as a share of output, a
process known as conditional convergence. However, savings rates vary widely
across countries. In particular, since considerable financing constraints exist
for investment in schooling, savings rates for human capital are likely to vary
as a function of cultural and ideological characteristics in each country.
Since the 1950s, output/worker in rich and poor countries generally has not
converged, but those poor countries that have greatly raised their savings
rates have experienced the income convergence predicted by the Solow–Swan
model. As an example, output/worker in Japan, a country which was once
relatively poor, has converged to the level of the rich countries. Japan
experienced high growth rates after it raised its savings rates in the 1950s
and 1960s, and it has experienced slowing growth of output/worker since its
savings rates stabilized around 1970, as predicted by the model.
The per-capita income levels of the southern states of the United States have
tended to converge to the levels in the Northern states. The observed
convergence in these states is also consistent with the conditional convergence
concept. Whether absolute convergence between countries or regions occurs
depends on whether they have similar characteristics, such as:
* Education policy
* Institutional arrangements
* Free markets internally, and trade policy with other countries.
Additional evidence for conditional convergence comes from multivariate,
cross-country regressions.
If productivity growth were associated only with high technology then the
introduction of information technology should have led to a noticeable
productivity acceleration over the past twenty years; but it has not: see:
Solow computer paradox. Instead world productivity appears to have increased
relatively steadily since the 19th century.
Econometric analysis on Singapore and the other "East Asian Tigers" has
produced the surprising result that although output per worker has been rising,
almost none of their rapid growth had been due to rising per-capita
productivity (they have a low "Solow residual").
## References
The page body text came from Wikipedia.
* Wikipedia: [Solow–Swan model](https://en.wikipedia.org/wiki/Solow%E2%80%93Swan_model)
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