THE

SOLOW
GROWTH
MODEL
Ass Prof . Nahin Rahman

Ashfak Rahman
Roll :19141063
s
choose two countries that interests you- one rich and one poor. what is the
income per person in each country? find some data on country characteristics
that might help explain the difference in income: investment rates, population
growth rates, educational attainment, and so on. how might you figure out
which of these factors is most responsible for the observed income
differences?
Ans: Educational achievement, which may represent differences in specific 'human resources' or in the
level of technology.if the labor force becomes more trained, better technologies can be implemented
becomes one significant difference across countries. Here, education would be known as 'technology' in
that it allows for more production per worker for any given physical capital cost per worker. For both
countries considered, summarizes those data in the table:

Labor Force Investment/ Illiteracy (% of

Country’s name growth (2005- GDP (2005 -2010) Population2005-
2010) in % 2010)
Canada 15.5 18.41 0
Bangladesh 3.2 13.62 61.68

We can see that there is large difference between labor force growth ,investment and literacy rate.so we
can say that Canadas economic growth is greater than Bangladesh.

We can see this table in a formal way. The Solow model can be used on this table, Assume that two
countries have same production technology: Y=K 1/2 L 1/2

The steady-state value of capital is derived from sf (k)  (n   )k  0 . Since y  f (k)  k1/2,

k*= 𝑠
( )
𝑛+𝛿

so that 𝑠
y*= ( ) Assuming that the Canada and Bangladesh are in steady-state and have the same
𝑛+𝛿
rate of depreciation –say, 10 percent- then the ratio of income per capita in the two coutries is

𝑌 𝑐𝑎𝑛𝑎𝑑𝑎 𝑠 𝑐𝑎𝑛𝑎𝑑𝑎 𝑛 𝐵𝑎𝑛𝑔𝑙𝑎𝑑𝑒𝑠ℎ+0.1

=[ ][ ]
𝑌 𝐵𝑎𝑛𝑔𝑙𝑎𝑑𝑒𝑠ℎ 𝑠 𝐵𝑎𝑛𝑔𝑙𝑎𝑑𝑒𝑠ℎ 𝑛 𝐶𝑎𝑛𝑎𝑑𝑎+0,1

From this equation, it can be inferred that if the Canada saving rate had been twice as much that of
Bangladesh, then canadas income per worker would be twice Bangladesh level (ceteris paribus). So
given a good labor force growth. GDP growth and literacy rate indicates a economic growth of a country.
In this case we can see that Canadas economic growth is as early as Bangladesh