The Solow Model

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Using the Solow Model to draw to analyse the strange development of Ireland and Greece 2007-2017 “I had one fundamental question about economics: Why do some places prosper and thrive while some others just suck” P.J O Rourke, 1998 Why do some countries grow faster than others economically? Why is it that some show large growth when it seems as though they should not? An example of this was the growth that the Germany and Japan underwent after WWII despite being considered the losers of the war. They displayed much higher growth per year that the US, who were considered to have won the war. Another example would be the growth Ireland has shown in the aftermath of the economic downturn in 2007. To understand why some countries, grow…show more content…
The Solow Model theorizes the more your population grows and the more it is educated the workforce is, the more output your economy will produce i.e. GDP. What the Solow model fails to clarify is the type of education that is necessary for growth, the type of education would be dependent on the stage of development of the country. For example, after the economic crash of 2007 Ireland started to invest heavily in teriatry student as they need a highly educated workforce to capture foreign direct investment (IMF, 2017). In the Solow model human capital is treated much the same as physical capital in that if the workers are made more productive in their labour, because they are more educated, then the level of output will increase and living standards will rise. In being treated as an equivalent of physical capital the same analysis does carry over in that the accumulation of human capital only temporarily cause growth until the point of diminishing returns. This can come into to play due to an ageing work force or emigration of top talent aka…show more content…
Generally, when an economy is developing and largely agricultural is that more people becom displace due to farms leading to a cheap labour force for any new industry that might evolve. This however did not happen in Ireland due to ease od emigration to the UK, US and New Zealand. This kept the wage price high as the human capital emigrated when there was no work and this did not allow for a higher investment in new industries. Protectionist policys also kept the economy from developing because the domestic industrie were not subject to international

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