Theoretical Models of Human Capital and Economic Growth
Theoretical Models of Human Capital and Economic Growth
This chapter starts with a brief overview of the main characteristics of the basic growth model, the Solow–Swan model with exogenous technical change. It is considered to be the workhorse model of growth theory and is the main benchmark against which alternative and more refined models are gauged. In its basic form, the model describes a situation where there is zero growth in equilibrium and offers insights into why this is the case and how an economy can achieve alternative steady states characterized by positive growth rates. This chapter also discusses a concept important in theories of long-run economics, that of convergence. Convergence measures the path that some variable takes toward a particular value of interest. Absolute convergence deals with transition dynamics to the steady state. Conditional convergence implies that, conditional on their characteristics, economies will converge faster to their steady state the further away they are from it.
Keywords: Solow–Swan model, basic growth model, conditional convergence, absolute convergence
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