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Neoclassical Growth Model Solow Exogenous

Main assumptions implies a production function of two factors, labor and capital - that it yields decreasing each factor and constant returns to scale. And also assumes perfect competition in product markets and factor. Economic implications of the assumptions regarding investment in R & D: The perfect competition reduced to zero excess profits, so if any company makes a technological innovation can not be appropriated for the benefit of it. When the production function has constant returns to scale, payments to factors according to their marginal productivity (that is an implication of perfect competition) runs exactly the value of the product, not subtracting resources to reward technological innovation. Of the two paragraphs It follows that in this model, employers have no incentive to invest in developing new production techniques. The model assumes that the state of technology is foreign to it. Conclusions of the model - The determinants of growth as the Solow model The model draws the following conclusions: The level of per capita output in the long run (steady state) depends on the saving rate of the economy, which is the determines the capital stock. And the production function depends on the state of technology. At steady state, the rate of growth of aggregate output depends on the rate of population growth and the rate of technological progress. The growth rate of per capita production is independent of the rate of savings (investment), and depends solely on exogenous technological change. The model has a unique and stable stationary point, which will be reached whatever the initial conditions, because if technical progress is spread throughout the world, it is anticipated that there will be convergence of per capita growth rates and, even levels of income per capita. That is predicted that economies whose per capita capital is initially low (poor regions) will grow at rates higher than those economies where it is higher (regions rich). This called convergence hypothesis. policy recommendations derived from the neoclassical model of Solow The generic recommendation derived from this model calls without state intervention, political, economic liberalization and deregulation. Of the convergence hypothesis follows that there is a need for regional policies.