Solow Model Research Articles

War and Economic Growth: An Analysis Based on Extended Solow Model

ABSTRACT This paper presents an analysis of the dynamics of economic growth in war and post-war periods. For this purpose, we introduce an extended neoclassical model of economic growth with the civilian and military production sectors which is based on the Solow model. The war period is characterized by gradual transfer of capital and labor from the civilian sector to the military sector. The negative impact of war on capital stock and population is also examined. We find that war has only a transient effect on a long-run equilibrium. However, its short-run dynamics is determined by initial conditions imposed on the economy at the beginning of war and the characteristics of the war itself.

Testing the endogeneity of a spatial weight matrix in the weak-tied spatial dynamic panel data model

Weak ties in large-scale networks facilitate the diffusion of information and resources, generating spillover effects. While geographic proximity may generate straightforward networks, a non predetermined spillover framework better accommodates socioeconomic interactions. In such cases, it is important to test the endogeneity of a spatial weight matrix before full estimation to ensure valid and efficient model selection. I propose a robust score test to assess this endogeneity in the weak-tied spatial dynamic panel data model, emphasizing its asymptotic optimality and computational efficiency. First, I correct score function biases to address the incidental parameters problem. Second, I adjust the score functions to enhance robustness against local parametric misspecifications. Monte Carlo simulations demonstrate favorable finite sample properties. In my application, I illustrate how this test helps model selection for the Solow-Swan growth model, considering spillovers from geographic and knowledge proximities. The estimation results reveal endogenous spillover effects with weakly positive impacts on real income per worker, while savings show positive internal effects but negative spillover effects, possibly due to competition for investment. Notably, the labor growth rate positively influences knowledge accumulation and innovation, leading to beneficial effects on real income per worker through both internal and spillover channels.

Financial innovation can hamper the sustainable economic growth: A tale of two emerging economies

This study compares the sustainability of financial innovation, development, and economic growth in India and China, considering macro-economic factors like globalization, inflation, and monetary policies. It addresses the impact of financial development on sustainable economic growth by analyzing these two major emerging economies. The ARDL co-integration approach is used to assess long-run and short-run relationships among variables, focusing on sustainability. The results show a long-term co-integration among financial innovation, development, and economic growth, revealing challenges to sustainable development. Both countries show a negative long-term relationship between financial innovation, development, and economic growth, with India's impact larger in magnitude than China's. In contrast, short-term results are positive and significant for both nations. The ECT term suggests India requires more short-run adjustments to reach equilibrium. Overall, financial initiatives in both countries, amid globalization and monetary challenges, do not support sustainable long-term GDP growth but have short-term positive effects. China performs better due to smaller negative coefficients and fewer adjustments needed. The findings align with economic theories such as the Solow growth model and the theory of endogenous growth, emphasizing efficient allocation of financial resources for growth. This research adds valuable insights to the literature on sustainable economic outcomes in India and China, providing policymakers with guidance for future strategies to achieve sustainable growth.

The Long-term Economic Growth Impact of Chinese Investment in Africa

Africa and China have always been a community of destiny, with close ties and similar historical backgrounds. However, investigating whether the Chinese investment benefits the sustainable economic growth for Africa is valid. The gist of this essay is to look at the impacts of the Chinese investment on Africas economic growth. Through analysing the structure of Chinese investment, the constraints to Africas growth, the impacts caused by Chinese investment, and their effectiveness of them. The Solow Model is an exogenous doctorial model that is recognized by the public and also focuses on long-term economic growth. The essay will apply the Solow Model to realistic situations and use it to prove the effects that Chinese investment brought by using derivatives such as capital, investment, labor force, technology, and output. The properties of the Solow Model will also be involved. The research result is that Chinese investment has indeed helped Africas sustainable economic growth and it also fits the properties of the Solow Model. Meanwhile, there are some constraints and lack of effectiveness along with the benefits. So the essay concludes that even though the Chinese investment benefited the long-run economic growth of Africa, the African governments still need to increase their interventions in the market such as introducing policies that can control the dependency on Chinese leadership. And it is also important for Africa to maintain the ability to think independently and have its agendas.

Dynamic self‐control preferences and the behavior of the saving rate

AbstractWe characterize the dynamics of the saving rate in an exogenous growth model where consumers exhibit present‐biased preferences. Based on empirical evidence, we assume that consumers are subject to temptation and exhibit a preference for costly self‐control. Moreover, we propose the intensity of these phenomena to depend on aggregate wealth. We show that in economies where consumers are present‐biased, the saving rate follows a hump‐shaped pattern after an exogenous destruction of the capital stock. The present‐bias effect on the intertemporal consumption choice counteracts the standard effect from decreasing returns to capital. After a large destruction of capital, the temptation effect can dominate in the first periods of the adjustment process. By calibrating the model, we obtain a very good fit between our simulations and data concerning the saving rate, the growth rate, and the speed of convergence from the European recovery after World War II.

IMPACT OF VOCATIONAL EDUCATION ON ECONOMIC GROWTH: AN ANALYSIS OF THE INDIAN ECONOMY

Vocational education can be seen as an important tool in leveraging India’s demographic dividend. Given the labor surplus in terms of the young population, it is important to examine how vocational education and training can serve as a critical driver of economic growth. This study aims at examining the impact of vocational education and training on economic growth in India, using the framework of the augmented Solow growth model by decomposing human capital into vocational education, along with primary, secondary and higher education. Using an ARDL model based on the annual data from 1990 to 1991 and 2019 to 2020, the study analyzes the short-run and long-run impact of vocational education. The results indicate that in the case of India, the impact of vocational education on economic growth is both a short-run and long-run phenomenon exhibiting a stable positive relation. Other control variables used in this study, such as Investment, Population, Openness and Inflation are found with a significant impact on economic growth. The study suggests that it is necessary to upgrade vocational education programs to create high-quality workers with a view to improving productivity and macroeconomic outcomes in India.

Does sovereignty help economic growth? A recent reassessment

There is relevant literature that has found that independence harmed economic growth in some former colonies, but there are few to no systematic and recent empirical analyses on the relationship between sovereignty and economic growth. We follow and enhance the Solow–Swan growth model to measure economic convergence with the United States. This model was estimated through feasible generalized least squares panel regressions and robust regressions. These estimations allow us to capture the experience of recent (since the 1950s) sovereignties vis-à-vis long-existing countries and the economic outcomes of democratic sovereignties. We then stratify economies by region and income level and show propensity score matching estimators of recent former colonies with other countries that share similar growth determinants. On average, our parameter estimates suggest that independence causes countries’ per capita income to converge with that of the United States. Initial democratic and economic conditions appear to be among the modifying factors between sovereignty and economic growth.

Influence of Health Insurance Financing on Economic Growth In Kenya

Economic growth positively impacts population health, providing access to quality healthcare, environmental protection, clean water, and better preventative behavior. However, Kenya's declining growth rate affects health financing, causing many citizens to struggle with access to care due to rising medical costs. This study sought to analyse the influence of health insurance financing on economic growth in kenya. The study was guided by the Solow-Swan Exogenous Growth Model. The study was conducted in Kenya. Data used in study was longitudinal data for twenty two years. The study period was from 2000 to 2022. A descriptive and inferential analysis performed where Auto-Regressive Distributive Lag (ARDL) model was used. Analyzed data were presented in the form of tables and discussions. The health insurance financing indicated a positive and statistically significant (b=0.2935; p = 0.0280.05), implying that one unit increase in health insurance financing could result in 0.2935 units in economic growth in Kenya. The study showed that adjusted R-squared was 0.9271, implying that the model explains approximately 92.71% of the variation in the economic growth in Kenya. The study concluded that, health insurance financing, is positively related to economic growth in the long run in Kenya. The study recommends that there is need for enhancing health insurance financing sources and gradually shifting towards sustainable domestic financing sources.

The Effects of IT and Financial Development on Economic Growth in BRICS-T Countries: Insights from the Solow Growth Model

The aim of the study is to examine the impact of IT and financial development on economic growth in BRICS-T countries for the period 1990-2022 using the panel quantile technique. For this purpose, IT technology and financial development variables were added to the basic Solow model. According to the findings, the impact of physical capital stock on economic growth is positive in all quantiles. The effect of population growth on economic growth is significant starting from 0.4 quantile and the negative effect increases as the quantile level increases. Information technology, which is the subject of the study, positively affects economic growth and this effect decreases as the quantile level increases. The variables we used to represent the level of financial development, financial institutions have a positive but statistically insignificant coefficient sign, while financial markets have a statistically significant but negative coefficient sign. This negative effect increases as the quantile level increases.

Analytical-applied and organizational-structural support for innovative development processes in agro-construction cluster enterprises

This article explores the economic and managerial aspects of innovative development within agro-construction clusters based on modern theoretical and methodological premises and models of economic dynamics. The primary focus is on analyzing territorial-industrial clusters that promote innovation and enhance the efficiency of interaction between agricultural and construction enterprises. The article discusses cyclical models of economic dynamics (Solow, Romer, and Cobb-Douglas models) as tools for assessing the impact of innovation and identifying innovation stagnation. These models help explain how economic processes unfold in different regions under the influence of periodic (cyclical) changes and how these processes interact with spatial factors. The aim of the study is to develop recommendations for improving the management of clustering processes through the effective use of economic-mathematical models and risk analysis associated with cluster organization. The article examines the key advantages of territorial-industrial clusters, including increased productivity, innovative development, and economies of scale through shared resource use. At the same time, risks such as market monopolization, high entry costs for new participants, dependence on regional specificities, and excessive competition among participants are explored. The article also highlights the importance of integrating economic-mathematical models into modern management information systems (BIM – Building Information Modeling, ERP – Enterprise Resource Planning, SCM – Supply Chain Management), which allow for more effective forecasting of cluster development and identifying factors that contribute to or hinder innovative development. As a result, recommendations are proposed for improving management approaches to minimize risks and maximize the benefits of clustering, particularly in the agro-construction sector of Ukraine.

Artificial intelligence and wealth inequality: A comprehensive empirical exploration of socioeconomic implications

This study introduces a global database on artificial intelligence (AI) capital stock and related AI indicators. Using the data constructed, we investigate the impact of AI and capital stock accumulation on wealth inequality, a dimension not extensively explored in the literature. This study contributes to the growing body of literature on the socioeconomic consequences of AI, with implications for scholars, policymakers, and corporate executives. An innovative database detailing AI capital stock is developed by incorporating data from various sources, including corporate reports, industry databases, and scholarly literature. This novel dataset, focusing on the US, the EU, and Japan from 1995 to 2020, is a critical resource for future investigations. The research methodology is centered on an extended Solow–Swan model, conceptualizing AI as a form of capital that can substitute for or complement traditional forms of labor. A panel-corrected standard errors model is used to analyze the data, accounting for potential cross-sectional dependence and heteroscedasticity. Our findings reveal a positive and statistically significant correlation between AI technology adoption, AI capital stock accumulation, and wealth disparity. The analysis further indicates a complex interaction between income and wealth disparities, suggesting a mutually reinforcing cycle. This study fills a significant gap in the existing literature by offering a novel perspective on the distributional impact of AI. Our results underscore the importance of considering the broader socioeconomic implications of AI, extending beyond considerations of immediate productivity and economic growth. This study offers valuable insights for policy formulation and business decision making, emphasizing the necessity of a comprehensive understanding of the influence of AI on wealth distribution.

Effects of wariness on economic growth in overlapping generations models

We introduce the notion of wariness, defined as a concern for the lowest lifetime utility, in overlapping generations models and explore its effects on economic growth. In an exogenous growth model, under standard assumptions, we prove that the capital stock converges to a steady state. We then explore conditions under which this steady state is increasing (or decreasing) in the wariness level. We also provide a necessary and sufficient condition for the dynamic efficiency of the intertemporal equilibrium. In endogenous growth models (à la Romer (1986) or à la Barro (1990)), we show that the growth rate of capital stock per capita in the economy with wariness is lower (higher, respectively) than that in the economy without wariness if and only if the capital return is high (low, respectively).

Growth, poverty trap and escape

The well-known Solow growth model is the workhorse model of the theory of economic growth, which studies capital accumulation in a model economy as a function of time with capital stock, labour and technology-based production as the basic ingredients. The capital is assumed to be in the form of manufacturing equipment and materials. Two important parameters of the model are: the saving fraction s of the output of a production function and the technology efficiency parameter A , appearing in the production function. The saved fraction of the output is fully invested in the generation of new capital and the rest is consumed. The capital stock also depreciates as a function of time due to the wearing out of old capital and the increase in the size of the labour population. We propose a stochastic Solow growth model assuming the saving fraction to be a sigmoidal function of the per capita capital kp . We derive analytically the steady state probability distribution P(kp) and demonstrate the existence of a poverty trap, of central concern in development economics. In a parameter regime, P(kp) is bimodal with the twin peaks corresponding to states of poverty and well-being, respectively. The associated potential landscape has two valleys with fluctuation-driven transitions between them. The mean exit times from the valleys are computed and one finds that the escape from a poverty trap is more favourable at higher values of A. We identify a critical value of Ac below (above) which the state of poverty (well-being) dominates and propose two early signatures of the regime shift occurring at Ac . The economic model, with conceptual foundations in nonlinear dynamics and statistical mechanics, shares universal features with dynamical models from diverse disciplines like ecology and cell biology.

Solution analysis of Solow Growth Model for financial practices and applications

Solow Growth Model (SGM) is an economic model that is exogenous in nature and examines the relationship between the output and input levels in an economy over a period of time. It projects long-term economic growth in relation to labour (population growth), savings rate, and technological development. However, traditional approaches to solving the Solow growth model may rely on complex mathematical techniques that might not give an accurate representation of real-world economic dynamics. Thus, this paper applies the Natural Decomposition Method (NDM) to the Solow growth financial model. The NDM is a numerical technique that combines the Natural Transform (NT) and the ADM-Adomian decomposition method. The NDM simplifies problem-solving by converting the original differential equations into algebraic equations as regards limitations associated with nonlinear models. From the results obtained by applying the NDM to the Solow growth financial model, researchers and policymakers can better understand the interplay between financial variables, such as savings rates, investment, and capital allocation, and their impact on economic growth dynamics, as a systematic approach to capturing the complex relationship between finance and economic development within the Solow framework is ensured. Further research and application of the NDM can contribute to advancing the knowledge of economic dynamics and support evidence-based decision-making in economic policy.

Technical Progress and Endogenous Growth: An Econometric Analysis Using Panel Data on the MENA Region

From the dawn of the Christian era until the Industrial Revolution, the standard of living saw little to no change and remained relatively stable during this period. However, since the Industrial Revolution, living standards have experienced sustained growth up to the present day. The Solow model attributes this growth to technical progress, but where does this progress come from? To truly understand economic growth, we must therefore go beyond the Solow model and attempt to explain technical progress itself. The objective of this work is to identify and specify the factors that may explain technical progress (in other words, what causes growth in A (PGF)?). To this end, initially, we relied on a set of theoretical works ( (Romer, 1990; Lucas, 1988; Barro, 1990; Aghion, Blundell, Griffith, Howitt, & Prantl, 2009), among others) which led us to a set of recommendations. Therefore, in a second step, we proceed to an empirical analysis using panel data to test the significance of the impact of this set of recommendations on technical progress in the Middle East and North Africa (MENA) region. Our econometric results show that there is still much to be done in the MENA region to catch up with the United States, Sweeden, Switzerland, Japan, Germany or France: the establishment of a research and innovation system based on the needs of economic and social development, an increase in the budget allocated to research, massive investment by the private sector in universities, the strengthening and creation of institutions, etc.

Review of the economic aspect of Beijing 2022 Winter Olympic Games

To estimate whether holding the Beijing 2022 Winter Olympic Games could promote notable economic growth within a country or trigger the situation of government deficit to some extent, this article will first introduce two economic models, the Solow Growth Model and the Endogenous Growth Model, which are widely used to solve economic problems, then applicate these two models to analysis this issue respectively by comparing to the precise data released by official institutions. Data from some authorities, the Beijing Organizing Committee for the 2022 Olympic and Paralympic Winter Games, and the National Bureau of Statistics of China were used to measure some variables affecting a nation’s economy, such as GDP per capita, TFP, capital, employment, and so on. Finally, through comparing relative variables in each model to determine two results about if Beijing 2022 Winter Olympic Games is positive for economic growth. Inevitably, each kind of model may have limitations that are not able to be adaptable to all sorts of situations, thus, in the last part of this article, some loopholes in analyzing this issue will be shown.

Revisiting the Solow Growth Model a Theoretical Examination of Technological Progress in Developing Economies

Revisiting the Solow Growth Model a Theoretical Examination of Technological Progress in Developing Economies

Relationship between capital accumulation and production growth in the interpretation of the R. Solow's model of economic growth

The study of economic growth factors is of greatest interest in modern economic science. The level of economic development is the key to solving social problems and improving the quality of life of the population. This study examines the impact of capital accumulation on economic growth. The author uses a neoclassical approach to the analysis of economic growth factors. Capital accumulation in the main sectors of the economy – mining, manufacturing, agriculture – is considered as a factor indicator. The main hypothesis of the study is that currently, the accumulation of fixed capital in important sectors of the Russian economy is not enough to significantly increase labor productivity and subsequent economic growth. This requires not only a qualitative, but also a quantitative assessment of the capital accumulation factor. Based on the results of the study, conclusions of practical importance were drawn. Firstly, an increase in capital per 1 worker by 1% leads to an increase in labor productivity by more than 1%, that is, the growth in labor productivity outpaces the growth in capital per 1 worker. Consequently, the capital-labor ratio can be considered as an important factor of economic growth. Secondly, a negative factor should be considered the lag in the pace of production renewal from the pace of withdrawal of fixed assets in industry and agriculture in some regions of Russia, which dictates the need to implement special programs in certain regions of Russia to intensify the development of manufacturing and agriculture. Thirdly, increasing the rate of capital growth per 1 worker for higher growth of labor productivity is advisable only in the manufacturing industry and agriculture, which is associated with the currently lower rates of capital growth per 1 worker in these industries compared to the mining industry.

Assessing the nexus between currency exchange rate returns, currency risk hedging and international investments: Intelligent network-based analysis

Through the exogenous growth model, the inflow of international investments promotes economic growth by the inclusion of foreign technologies in production functions and capital accumulation. But the proportional increasing outflow of international investments from emerging countries rapidly squeezes their economies. The main reasons of the massive gap between the inflow and outflow of international investments are devaluation of their home currency and inaccessibility of the foreign exchange derivatives instruments for potential currency risk hedging. The previous studies have strongly ignored the role of two-way multicurrency cross-risk hedging (MCCRH) in bilateral flows of international investments by conditioning effect of the currency returns. By considering the significance of the subject matter, it is needed to assess the interaction between two-way MCCRH, currency returns of multicurrency exchange rate returns (MCERRs) and bilateral flows of international investments, and conditional dependency of random variables of the intelligent network structure. The regression-based MLP and probabilistic Bayes intelligent neural networks represented that the two-way MCCRH and currency returns of MCERRs have a strong impact on bilateral flows of international investments in an emerging country. The constraint-based approach of the probabilistic Bayes intelligent neural network showed that the two-way MCCRH conditionally affects the bilateral flows of international investments given the percentage of currency returns of MCERRs. This study may assist policymakers and regulators to enhance currency returns and availability of foreign exchange derivatives instruments at the least cost to grab more intention of international investors for investments that will expand the economic growth of Pakistan.

Stability Analysis of a Fractional-Order Time-Delayed Solow Growth Model with Environmental Pollution

Economic growth is resulting in serious environmental problems. Effectively establishing an economic growth model that considers environmental pollution is an important topic. To analyze the interplay between economic growth and environmental pollution, a fractional-order time-delayed economic growth model with environmental purification is proposed in this paper. The established model considers not only the environment and economic production but also the labor force population and total factor productivity. Furthermore, the asymptotic stability conditions and parameter stability interval are provided. Finally, in numerical experiments, the correctness of the theory is verified.