Solow

Solow, named for Robert M. Solow, is a foundational framework in economic growth theory. Solow introduced a model in 1956 that analyzes long-run growth by examining capital accumulation, labor forces, and technological progress. The Solow growth model has become a standard reference in macroeconomics and growth accounting.

The model assumes a production function with constant returns to scale, typically involving capital and labor, and often stylized as a Cobb-Douglas form. A key feature is that technology progress, denoted by A, grows exogenously. The economy saves a fixed fraction s of output, while a portion δ is depreciation and the labor force grows at rate n. With technology, the effective workforce grows at rate g. In per-effective-worker terms, the capital per effective worker k = K/(AL) evolves according to dk/dt = s f(k) − (n+g+δ) k. The steady state occurs where s f(k*) = (n+g+δ) k*, and in that state, growth of output per worker arises only from the growth of technology at rate g.

The Solow residual measures the portion of output growth not explained by changes in capital and labor inputs, and is interpreted as total factor productivity growth. It captures efficiency improvements, innovation, and other factors affecting productivity.

Robert Solow received the Nobel Prize in economics in 1987 for his contributions to the theory of economic growth. His work established the baseline framework for growth analysis and stimulated subsequent endogenous-growth models that attempt to explain the sources of technological progress within the economy.