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Essay / Research Paper Abstract
This 20 page paper examines the Solow-Swan Model, also known as the Neo-classical growth model. The model is examined and assessed, compared with the Harrod-Domar model with the aim of considering how the model could be adapted. Using the literature existing adaptations are discussed and the potential of a multiple stable steady states model. The bibliography cites 20 sources.
Page Count:
20 pages (~225 words per page)
File: TS14_TEsolowswan.rtf
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Unformatted sample text from the term paper:
been developed to explain how economies perform. One model that has received a great deal of attention and support is the Solow-Swan Model. This model is based on a neoclassical
production function and the capital law of mutation along with fixed rates for savings and the way convergence is reached. The prediction of the Solow-Swan model is that the
growth levels occurring are not correlated with the level of investment when compared with the gross domestic product (GDP) (Farmer and Lahiri, 2003). In this model where there are open
capital markets there should be an instant convergence over the countries in terms of the GDP per capita across (Farmer and Lahiri, 2003). The convergence occurs as the poor flow
of capital is from rich countries to poor countries. It is as a result of this that national saving to GDP ratio is likely to be at a very different
level on each country (Farmer and Lahiri, 2003). The model is one that is very pessimistic regarding policies that encourage savings due to the way this is seen as the
rate of growth is interpreted as an " exogenous parameter determined by forces of demography and technology that do not respond to macroeconomic policy" (Michl, 2003). The result is that
the advatages gianed from increasing capital accumualtion will then dissipate due to the law of diminishing retruns (Michl, 2001). Contrastingly, if the surplus is invested it may be able to
produce better retruns as supported by modles such as Adam Smith and Richardo. Moreover, here is no reason to believe that countries where there are high savings levels will also
be the countries with the best investment opportunities. However, in the real world there are many barriers, the capital market is not a perfect market, there is not the
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