What are the best economic growth models?

1 Solow-Swan Model

The Solow-Swan model, developed by Robert Solow and Trevor Swan in the 1950s, is one of the most influential and widely used models of economic growth. It assumes that there are two factors of production, capital and labor, and that they are subject to diminishing returns. It also assumes that technology improves at a constant rate, which is exogenous to the model. The Solow-Swan model shows that the steady-state level of output per worker depends on the savings rate, the depreciation rate, and the population growth rate. It also shows that the long-run growth rate of output per worker depends only on the technological progress rate.

2 Endogenous Growth Model

The endogenous growth model, developed by Paul Romer and Robert Lucas in the 1980s and 1990s, challenges the Solow-Swan model by introducing endogenous technological progress. It assumes that technology is the result of intentional research and development (R&D) activities by firms or individuals, and that it has increasing returns to scale. It also assumes that technology can spill over from one firm or sector to another, creating positive externalities. The endogenous growth model shows that the long-run growth rate of output per worker depends on the incentives and policies that affect R&D, innovation, and human capital accumulation.

3 Unified Growth Theory

The unified growth theory, developed by Oded Galor and others in the 2000s, attempts to explain the transition from stagnant to sustained economic growth in human history. It assumes that there are three factors of production, physical capital, human capital, and land, and that they have different effects on output and population growth. It also assumes that there are two types of technological progress, Malthusian and non-Malthusian, and that they have different impacts on income and fertility. The unified growth theory shows that the interaction between technological progress, population dynamics, and human capital formation can generate multiple phases of economic growth, such as the Malthusian era, the post-Malthusian era, and the modern era.

4 New Structural Economics

The new structural economics, developed by Justin Lin and others in the 2010s, is a framework for understanding the structural transformation and diversification of economies at different stages of development. It assumes that there are three types of industries, traditional, modern, and new, and that they have different characteristics, such as productivity, demand, and comparative advantage. It also assumes that there are two types of constraints, hard and soft, and that they affect the feasibility and profitability of industries. The new structural economics shows that the optimal growth strategy for an economy depends on its endowment structure, its comparative advantage, and its institutional quality.

5 Big Push Model

The big push model, developed by Paul Rosenstein-Rodan in the 1940s, is a theory of economic development that emphasizes the role of coordination and externalities. It assumes that there are many sectors in an economy, and that they have interlinked demand and supply. It also assumes that there are increasing returns to scale and indivisibilities in production and investment. The big push model shows that a large-scale and coordinated investment in multiple sectors can overcome the coordination failure and create a self-sustaining process of economic growth.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?