I use the Excel workbooks and Word documents available for download below to explain the Solow Growth Model.
The model deals with the ageless question of economic growth: Why do some countries grow rapidly while others lag behind? It was developed in the late 1950s by Nobel Prize winning economist Robert M. Solow and today what is sometimes called the Neoclassical Growth Theory is a standard part of most macroeconomics courses.
Since the tremendous variation in economic growth across countries and time is undoubtedly one of the most fundamental puzzles faced by social scientists, the Solow Model needs to be understood by undergraduate students. It turns out, unfortunately, that the Solow Model utilizes some rather sophisticated concepts. It is driven by differential equations that make presentation to all but the most advanced undergraduate students quite difficult.
General Teaching Point: Imagining is Hard, Seeing is Easy
DeLong, Mankiw, Williamson--all of the modern macro textbooks have presentations on the Solow Growth Model that require fantastic feats of imagination by the student. I strongly believe that if you really want the typical undergraduate to understand the properties of the Solow Model, you have to eliminate all abstraction and make the presentation concrete. This can be done by simulation. The student will see, on his or her screen, the time path the economy is on and no superhuman feats of imagination are required. Cranking out the process is extremely tedious by hand and ridiculously easy with a computer. A button click is all that is needed.
Comparative statics becomes a matter of changing a variable and seeing what
happens to the simulated economy.
The files below are my attempt to use the computer to crank through tedious calculations that enable the student to actually observe Solow's Model in action. By replacing the advanced mathematics of the model with simple arithmetic, the undergraduate student can better understand what's going on.
Excel97 (or greater) and Word97 (or greater) are needed to use the files. Click "Enable Macros" when prompted as you open the Excel file.
Depending on how your browser is configured, you may have to save the file to disk and then open it from Excel (or Word). Do NOT open the files within the browser. Windows users should right-click and download the file to the hard drive.
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(each <200K; right-click and download to disk) |
(each <200K; click to download) |
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Introduction to the basics of the Solow Model. How output is distributed into consumption and investment determines capital accumulation. |
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Using Excel's Solver to find the Golden Rule level of savings. |
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Extending the model by incorporating the effects of population growth. |
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We finally reach the Solow Model by adding technological progress. This is how a sustained positive %change in real GDP per person is explained. |
Please contact me if you have any problems accessing these files. Suggestions, comments, and criticisms are most welcome.
See all files for Intermediate Macroeconomics (Mankiw, 4th ed.).
Humberto Barreto
Department of Economics
Wabash College
Crawfordsville, IN 47933
Email: barretoh@wabash.edu
Phone: 765.361.6315
FAX: 765.361.6277
Last Update: Jan 2002