What about Convergence: The Solow Model and Alternatives

In his textbook on “The Process of Development,” James Cypher outlines multiple models on how to look at development when you move from the classical standpoint to the more mathed up neoclassical framework. The first model he introduces is the Solow growth model where total output is a function of technology, capital, and labor, with diminishing returns to capital and labor. In the model, technology comes from outside, and “it is this exogeneous technology which is basic to higher levels of income per capita over time” (150). The model predicts two important things. The first is that there is a steady state equilibrium that can be attained, and that there is a convergence between similar countries. Opposed the classical models, in the Solow model focusing on building capital goods will not increase the rate of growth, and there is a ceiling on levels of income per the rate of savings (which equals the rate of investment) (151), so the model intuits that the way to growth is the increase the savings rate of the nation to raise that ceiling.

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The Solow model was created in response to the Harrod-Domar growth model, a more Keynesian approach. Unlike the Solow model which looked at the savings rate, the Harrod-Domar model sees the rate of growth as a function of both the savings ratio as well as the capital / output ratio (152). The Keynesian view is…