growth model of Robert Solow (1956), known as exogenous growth model and the neoclassical growth model is a macroeconomic model designed to explain economic growth and the variables that affect in the long term. Intuitive Explanation Solow model intended to explain how increasing domestic production of goods and services through a quantitative model. In the model basically involves domestic production (Y), the savings rate (s) and the provision of fixed capital (K). The model assumes that the gross domestic product (GDP) is equal to national income (ie assume a "closed economy" and therefore there are no imports or exports).
production on the other hand depend on the amount of labor employed (L) and the amount of fixed capital (machinery, facilities, etc) used in production (K) and available technology (if the technology improved the same amount of labor and capital could occur again, although the model is usually assumed that the level of technology remains constant.) The model assumes that the way to increase GDP by improving the allocation of capital (K). Ie what is produced in a year a part is saved and invested in accumulating more capital goods or fixed capital (plant, machinery), so that next year may produce a slightly larger amount of property, as there will be more machinery available for production.
In this model economic growth is mainly due to the accumulation constant capital, where each year more machinery and facilities available (fixed capital) to produce progressively higher yields are obtained, whose long-term cumulative effect will have a notable increase in production and, therefore, a remarkable economic growth.
Among the qualitative predictions of the growth model is based purely on capital accumulation, without altering the amount of labor or alter the saving rate is progressively smaller, reaching a steady state in which there is no more growth and investment exactly offsets the depreciation associated with the wear of fixed capital.
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