Solow's Neoclassical

Growth Model

Ekonomi Perencanaan

Bagdja M - Rahmat
Latar Belakang

Jika model pertumbuhan Harrod-

Domar didasarkan atas pemikiran
yang dikembangkan oleh mazhab
Keynesian, maka model
pertumbuhan Solow didasarkan atas
pemikiran mazhab neo klasik
THE BASIC SOLOW
MODEL
 Fungsi Produksi didasarkan pada adanya
mekanisme substitusi antar faktor produksi
 Masing-masing faktor produksi akan
mengalami diminishing returns
 Pertumbuhan jangka panjang hanya akan
tercipta apabila ada technological progress.
 Technological progress is assumed to be
exogenous i.e. lies outside the growth
model
THE BASIC SOLOW
MODEL
 Growth depends on capital
accumulation → increasing the stock
of capital goods to expand productive
capacity
 Net investment and the need for
sufficient saving to finance investment
 Higher savings → postponing
consumption to finance increased
allocation of resources towards
investment
THE BASIC SOLOW
MODEL
 Capital widening: Peningkatan pada capital
stock pada tingkat yang sejalan/yang sama
dengan pertumbuhan angkatan kerja
 Capital deepening: capital stock tumbuh lebih
cepat dibandingkan dengan pertumbuhan
angkatan kerja. Considered more important.
 Quality of capital goods - improvements due
to R&D & innovation
THE BASIC SOLOW
MODEL
 Combination of capital deepening & technological
improvement explains major trends in economic
growth
1. Prediction - Adding more capital goods to a fixed
amount of labor will lead to diminishing returns to
capital.
2. Increased capital accumulation drives the rate of
return on capital down
3. Eventually, the rate of return may be so low that no
further net capital accumulation takes place.
4. In which case, the rate of technological progress
determined the rate of growth of output
SOLOW MODEL

 Fungsi produksi (Y) merupakan fungsi

dari modal (K) dan labor (L)
Y = f(K, L)
 Fungsi produksi mengalami constant
return to scale dimana masing-
masing faktor produksi akan
mengalami diminishing returns
 SOLOW MODEL
y
f[k]

Y  f ( K , L)
Karakteris tik CRTS adalah :
Y
 f ( KL ,1)
L
y  f (k )
y  output per worker
k  capital per worker

k
0
The Consumption Function
 Solow divided output into:
 Consumption goods,
 Investment goods.

 Demand for consumption goods is

motivated by different factors than the
demand for capital.
Y = C+I
The Consumption Function

C = Y- I = Y – S
C = Y – S = (1 – σ)Y
Dimana :
S = saving = σY
σ = saving rate, besarnya 0 – 1
 Dalam bentuk konsumsi per pekerja

c = y – i =(1 – σ)y
i = σy
The Stock of Capital

 The stock of capital increases with

investment (saving)
 The stock of capital gradually wears
out over time. The proportion of
capital that "wears out" in each period
of time is the rate of depreciation (δ)
 Solow assumed that a constant
proportion of the existing capital stock
depreciates in each period of time
The Stock of Capital

ΔK = I – δK
 Dalam bentuk perubahan modal per pekerja
Δk = i – δk
Δk = σy – δk
Δk = σf(k) – δk
 Investment increases the total stock of
capital only if it exceeds the amount of
capital that depreciates
 The Solow Growth Equilibrium
k f (k ) k  From the figure, k tends
y
gk  ( )  toward a stable equilibrium
k k level k*.
f(k)  y also tends toward a stable
equilibrium level y* = f(k*).
 These equilibrium values of k
y* b and y are often denoted as
the steady state
 The steady state here mean
σ.f(k) the growth rates of both k and
y are zero.
C
a  In general, the steady state
mean the growth rates of all
variables are constant
 the steady state is determined
by the intersection of the σf(k)
Gross
Invesment
curve and the δk line, and the
height of the σ f(k) curve
depends on the rate of
k
saving, σ
0 k*
The Solow Growth Equilibrium
 The model tells us that, in the long run,
output per worker, and thus per capita
income, stops growing even though the rate
of investment per worker remains positive
 Solow assumed that saving is a constant
proportion of income, the amount of
investment that can be funded out of saving
also grows at a diminishing rate. As the
stock of capital grows, eventually the growth
of saving falls to where it is barely enough
to fund the investment necessary to replace
the constant proportion of the growing
capital stock that depreciates.
 The Rate of Saving and The
Steady State
k

y  From the figure illustrates

f(k) how a change in the rate
y2*
of saving affects the
steady state of the
σ2.f(k) economy.
y1* b
 The Solow model shows
that even if the long-run
σ1.f(k)
rate of growth tends
C
a toward zero regardless of
the value of σ, the steady
state levels of capital per
worker and output per
Gross
worker do depend on the
Invesment rate of saving and
investment.
k
 The higher the rate of
0 k1* k2* saving, the higher the
level of per-worker output.