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Title: Two Notes on Economic Growth and the Solow Model

Author(s): Daniel Cohen

Publication Date: July 1993

Keyword(s): Growth, Human Capital, Physical Capital and Solow Model

Programme Area(s): International Macroeconomics

Abstract: The two notes deal (from different angles) with the extension of the Solow model that has been offered by Mankiw, Romer and Weil (MRW). In this `extended Solow' model, physical capital enters the production function with the same weight as human capital and both weights are about 1/3. The first note challenges the assumption that the law of motion of human capital is collinear with the law of motion of physical capital, a key assumption which allows MRW to keep a one-dimensional trade of economic growth. The note shows instead that growth appears to be the sum of two terms: the traditional Solow term (proportional to the distance between the initial and `terminal' value of per-capita income); and the `productivity wedge', which is shown to be involved and to depend on the human-to-physical capital ratio. The second note verifies that physical capital enters into the production function with a weight of (only) 1/3 but challenges the view that school enrolment is a `causal' determinant of economic growth. In order to do that, the note estimates a growth equation in which an idiosyncratic term is controlled for each country.

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Bibliographic Reference

Cohen, D. 1993. 'Two Notes on Economic Growth and the Solow Model'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=780