Video and Article Summary

The Nobel Prize-winning economist Robert Solow developed the Solow Growth Model
to analyze economic growth over time due to changes in the savings rate, population growth
rates, and technological growth rate. The Solow Growth Model is also known as the first
neoclassical model. The model takes into account several key assumptions that make it different
from other conventional models of economic growth. Solow came up with a simple
mathematical description that is effective in predicting and describing how the world works. The
underlying assumptions that drive the model influence the conclusions of the model. The
productivity of growth in the Solow Growth Model is considered independent of the amount of
capital growth (Dowrick & Rogers, 2012). In this case, there is the perspective of catch up
growth where there is a higher marginal rate of return in economies that are growing faster.
In the long-run, Solow argued that economies converge to their steady-state equilibrium,
and technological growth then drives continual economic growth (Młynarzewska-Boloweic,
2017). Tim Jackson’s paper, Prosperity Without Growth, provides vital insights on conventional
economics that ultimately question the relentless pursuit of exponential economic growth.
Jackson argues that building a post-growth economy depends on the quality of labor, the nature
of the enterprise, the role of money supply, and the integral structure of the investment. The text
is considered a vision of social progress in a post-crisis contemporary world.
One of the assumptions is that the population grows at a constant rate. In this case,
individuals compute the population growth through the equation N’ = N(1+g) where N’ is the
future generation, N is the current population, and g is the growth rate (Marginal Revolution
University, 2016). The second assumption is that all consumers consume a certain amount of
their income and save a constant proportion ‘s’. Consumption ‘C’ and output ‘Y’ are related

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through the equation whereby C= (1+s) Y (Marginal Revolution University, 2016). The third
assumption in the model is that all companies in the economy use the same production
technology that takes in labor and capital as inputs. The equation Y = aF(K,L) represents the
relationship between the factors, where Y is the level of output, F is the production technology,
K is the level of output, and L is the level of labor. In this assumption, Solow also assumes that
there is a constant-returns-to-scale ratio in the production function. This conjecture means that
the individual output is emphasized rather than the aggregate output. The last assumption is that
the existing capital stock ‘K,’ future capital stock ‘K’’, level of capital investment ‘I’ and rate of
capital depreciation’ are interlinked through the equation K’= K(1-d) + I (Guerrini, 2006). The
Solow-Swan Model is backed by a constant rate of capital depreciation.
The Solow Model explains why some countries have a higher per worker GDP, and
others have low per worker GDP. Such a scenario is explained by the assumption that is; all
countries are in their equilibrium states; richer countries have a higher saving rate than
developing countries. In most cases, rich countries register lower rates of population growth than
emerging countries. Data that is available for different economies seem to support Solow’s
prediction that no growth happens in the steady-state, and the transition path can be denoted by
either negative or positive growth (Van den Berg, 2016). The assumption that Growth is
exogenous in Solow’s economic growth model makes it realistic and the assumption that
technological progress signifies economic growth is also a simplified view of how economies
grow and transition over time (Khan, 2013). Mostly, the similar individual output share could
result in poorer countries converging towards richer countries’ equilibrium.
Tim Jackson’s views on economics through Prosperity Without Growth: Economics for a
Finite Planet challenges the measures of success as commonly propagated through politics and

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the media. Similar to the Solow Economic Growth model, Jackson developed ideas on economic
growth in the wake of the financial crisis. The author argues on widely debated ideas such as that
it is possible to separate resource use from GNP growth (Jackson, 2009). Such separation of the
two concepts that seem to go hand in hand is possible when economies focus on increased
efficiency. This notion explains how it is possible to grow economies while also reversing
environmental degradation.
A country can continue growing its industries and companies as long as it is resource-
efficient. However, Jackson argues that it is not possible to ‘decouple’ GNP growth from the
resource is primarily due to the consequences of climate change. He explains that it is almost
impossible to reduce greenhouse gases when focusing on growing GNP (Vazquez-Brust &
Sarkis, 2012). Jackson’s ideas on achieving lasting are founded on adopting a new form of
capitalism where people consume less and seek prosperity in better quality lifestyles,
relationships and building a more sustainable future. While the Solow Growth Model focuses on
an individual level of labor and technological progress as measures of economic prosperity,
Jackson introduces the perspective of living higher quality lives that are not driven by traditional
notions of a capitalist society.

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References

Dowrick, S., & Rogers, M. (2002). Classical and Technological Convergence: Beyond The
Solow‐Swan Growth Model. Oxford Economic Papers, 54(3), 369-385.
Guerrini, L. (2006). The Solow–Swan model with a Bounded Population Growth Rate. Journal
of Mathematical Economics, 42(1), 14-21.
Jackson, T. (2009). Prosperity Without Growth: The Transition to a Sustainable Economy.
Sustainable Development Commission.
Khan, F. A. (2014). Economic Convergence in the African Continent: Closing the Gap. South
African Journal of Economics, 82(3), 354-370.
Marginal Revolution University. (2016, April 12). The Solow Model and the Steady State [Video
file]. Retrieved from https://www.youtube.com/watch?v=LQR7rO-I96A
Młynarzewska-Borowiec, I. (2017). Neoclassical and Technological Catching-Up as The
Channels of the Real Convergence Process in the European Union. International Journal
of Business and Economic Sciences Applied Research (IJBESAR), 10(2), 7-18.
Van den Berg, H. (2016). Economic growth and development. World Scientific Publishing
Company: Singapore.
Vazquez-Brust, D. A., & Sarkis, J. (2012). Green Growth: Managing the Transition to
Sustainable Economies. In Green growth: Managing the transition to a sustainable
economy (pp. 1-25). Springer, Dordrecht.