The Solow–Swan model is a long-run economic growth model.
- single-sector economy
- closed economy (no trade)
- no taxation
Variables in the model
|Name||Variable||Unit||Set of possible values||Rival input?||Variable type||Notes|
|Output||Y||Units of GDP (dollar?)||[0, ∞)||–||Endogenous|
|Physical capital (capital stock)||K||[0, ∞)||Yes||Endogenous||Physical capital includes things like machines, computers, buildings, etc.|
|Technology (knowledge)||A, T||No||Exogenous|
|Growth of X|
|Population growth||(−∞, ∞)|
|Depreciation (rate?)||δ, d, D||Unitless|
|Capital per worker||k = K/L||Endogenous|
|Fraction saved||s||Unitless||[0, 1]|
|Output per worker||y = Y/L||Endogenous|
|Time||t||Time, e.g. years|
|Elasticity of output with respect to capital||α||Unitless||(0, 1)|
- (sometimes also )
TODO show that the model satisfies (1) constant returns to scale; (2) diminishing returns to capital; (3) diminishing returns to labor; (4) the Inada conditions.
A closed form is possible, but it is possible to play around with the model in non-closed forms to extract useful information.
Table of comparative statics
- Solow–Swan model (Wikipedia)