We can relate our findings to material studied on the course, specifically the Solow Model which

is used to explain economic growth

The Solow model,consists of the production function assumed to have the Cobb-Douglas form
given by: (insert equation) and the capital accumulation function (insert) . The production
function exhibits constant returns to scale, with all outputs doubling if inputs are doubled. With
more capital per worker, firms produce more output per worker. But, there are diminishing
returns with each additional unit of capital increasing the output per worker by less than the
previous unit of capital.

Where K is inputs of capital , L is labour and Y - output.

The model also predicts that the rate of economic growth will eventually level off as the
economy approaches its steady-state equilibrium. Our research on the effects of research and
innovation efforts, research productivity and diffusion and lags can be used to criticize this
model. For example, a study by Jones and Romer (2010) used a dynamic stochastic general
equilibrium (DSGE) model to estimate the impact of research and development (R&D) on TFP.
The study found that a 1% increase in R&D investment led to a 0.62% increase in TFP,
indicating a significant impact of R&D on TFP. The Solow model does not account for the
differences in technology and technological progress across countries. The model assumes that
all countries have the same technology and that technological progress is exogenous, meaning
that it cannot be influenced by economic policies. However, in reality, countries differ in their
technological capabilities, and government policies can play a significant role in promoting or
hindering technological progress. For example, the United States has a highly innovative
economy due to its strong intellectual property laws, robust venture capital industry, and a highly
skilled workforce. The country also invests heavily in research and development, with federal
funding for R&D at over $150 billion in 2021. Compare the US to Zimbabwe. Zimbabwe’s limited
pool of venture capital, access to funding, poor infrastructure, alongside experiencing
hyperinflation and currency devaluation have made it difficult for the government to prioritize
investment in innovation and technology. The Solow model does not account for these
differences, leading to an oversimplification of the determinants of growth. In reality,
technological processes can be endogenous: influenced by private investment, economic
policies and investments in R&D. Without taking this to account the Solow Model may lead to a
mismeasurement of the potential effect technological processes have on long-term economic
growth. So,
Another criticism of the Solow model is its assumption of diminishing returns to capital.
According to the model, as an economy accumulates capital, its marginal productivity declines,
leading to a slowdown in economic growth. However, in reality, technological progress can offset
this effect by increasing the productivity of existing capital and improving the quality of new
capital. However, as our research found, it takes time for new technological progress to diffuse,
another factor not accounted for by the model. The Solow model does not account for the
impact of technological progress on the productivity of capital, leading to a potential
mismeasurement of growth once again. Illustrated on the diagram, we can see how the Solow
Model would predict growth for a country X vs how growth may occur taking into account the
effects of technological processes on TFP illustrated by Ytech on the diagram.