1 - Growth models in economics

Abstract

This chapter describes growth models in economics. There has been a rekindling of interest in the process of economic development in the postwar period. In its first phase, theoretical enquiry focused on the task of formulating highly aggregative descriptive models of the growth process. Roughly speaking, this phase terminated with the publication in 1956 of the well-known papers of Solow and Swan. The achievement of this phase was the articulation of a self-contained model of the growth process: given only their initial values, the model generates the complete subsequent time path of each variable of interest. Since 1956, descriptive models of increasing complexity and realism have been constructed. At the same time, however, there has emerged an interest in the evaluation of the alternative paths of development available to the economy. In the simple model of Solow and Swan, there appear two constant parameters, the savings ratio s and the rate of population growth y. Each of these parameters can be influenced, directly or indirectly, as a matter of government policy.