Advantages Of Solow-Swan Model

Solow-Swan Model offered a new approach to estimating economic growth based on key factors of production. This research tested the hypothesis that the Solow-Swan Model effectively explains how countries attain a steady-state of economic development compared to previous models. It established that, by factoring the contribution of money in determining exogenous economic growth, the Solow-Swan Model is a comprehensive economic model. It concludes that Solow-Swan Model is an effective model for explaining exogenous economic growth as a factor of capital, population growth and technological progression. The earlier attempts to develop a plausible economic growth theory were used on using no empirical data. That is, the theories were not based on

The model assumes that exogenous economic growth is continuous over time. In other words, the capital stock of the country accumulates over time as the population continues to save. This is because labor input also increases correspondingly with the technological progress. As the government and the population’s income increases as a result of their increased output resulting from increased use of technology, their savings also increases as they set a faction of the income for savings. That is, the gross domestic product increases as a result of an increase in per capita income as the country experiences a technological progress which increases its productive efficiency. This is because such increase in productive efficiency increases capital and labor consumption. The second assumption is that the government does not engage in any trade as this will influence policy and change it into endogenous trade rather than exogenous trade. In addition, there should be no international trade (Agénor, 2004; Barro & Sala-i-Martin, 2004; Barro,

However, all other factors of production are being fully utilized in the production process. The fifth and last assumption of this model states that, labor force, one of the factors of production, continuously grow at uniform rate. However, to calculate economic growth using this model, the values of capital and labor must be definite and well. Generally, this model assumes that the growth of the GDP of any country and hence its aggregate economic growth is determined by technological progress. Therefore, if there is no growth in the productivity of the country (no technological progress or population growth and hence no capital stock growth), the economy enters into a steady where the labor-ratio remains at a constant. The output per worker also remains constant as well as the consumption per worker also remains constant relatively to their income (Barro & Sala-i-Martin, 2004; Barro, 2008). Such relationships and assumptions are indicated in the figures attached in the appendix as follows: Figure 1 “shows the long-run per-worker production function and capital accumulation (Long-run Productivity growth)” the graph elaborates that under the assumptions model, productivity per worker rises exponentially in the short-run. However, in the long-run the productivity levels as the economy attain a steady-growth rate. Figure 2 “Determines the