Wednesday, August 1, 2007

Reading Challenge VII

Today's selection: A Contribution to the Theory of Economic Growth. ($$)

Classic! Solow is as good as ever, and the math is easily followable. I admit to already being familiar with this work. I suspect anyone who shows up here will be as well.

One of the anachronisms of this paper (it is, after all, 51 years old), is the working out of examples within the main text. The Harrod-Domar one is worthwhile, since its knife-edge property was the apparent motivation for this rebuttal, but Solow also works out the solution for Cobb-Douglas and a CES-ish production functions. Clearly, the publishing of the CES function in 1961 was not a big a leap as I had been previously led to believe.

I was also taken aback by the large section devoted to the time path of wages and interest rates. The Fisher equation is referred to without calling it as such. I wonder when it was named? The fact that the depreciation of capital doesn't show up here was also surprising, especially given all the extensions to the model he elucidates are possible. I guess someone squeezed it in later.

Also, these graphs are remarkably well-done since Solow certainly did not have the benefit of latex.

In retrospect, Harrod now looks a little silly. Back then, it may have been a little silly to build a growth model that was all straight lines and equilibria and no Great Depressions.

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