Use the Solow growth model to analyze the impact of innovation and technological progress on the economic growth of the chosen country. Also using Konig and Winkler (2021) “Covid-19: Lockdowns, Fatality Rates and GDP Growth” as a starting point to consider the impact of COVID-19 on your analyses.
• The Solow Growth Model (SGM)
(a) Brief overview of the model – production function, savings-investment function, breakeven investment function, steady-state equilibrium with diagram.
(b) Predictions of SGM with diagrams
i. Diminishing marginal productivity of capital.
ii. Impact of saving rates on economic growth
iii. Impact of population growth rates on economic growth
iv. Technological progress as the driver of sustainable economic growth
(c) Limitations of SGM and measurement of technological progress (TFP) using Solow residual.
• Endogenous Growth Theory
Discussion of economic growth experience and government policies of your chosen country (1970 – current) in relation to predictions of SGM and endogenous growth theory.
You should integrate the data/graphs/evidence for your country as you are discussing the various predictions of the SGM and endogenous growth theory.
Data / Graphs that you could use from APO Productivity Databook 2020 or equivalent
(a) Contribution to GDP growth
(b) Marginal productivity of capital
(c) Contribution of TFP, capital, and labor growth to economic growth
Sample Solution