ECON DEV REVIEWER

The following could be considered critical questions in development economics?

a. How do the poorest 2/3 of the world live?

b. What are the major theories of economic development?

c. What factors affect labor skills in the third world?

HOW THE OTHER TWO-THIRDS LIVE economies collectively predicted to dominate global
economy in 2050
Inequality between the world’s rich and poor
Brazil
 Development economics focuses primarily on
the poorest 2/3, 82 percent of the world’s Russia
population India
 These poor are the vast majority, but not all, of China
the population of developing countries, which South Africa
comprise 82 percent of the world’s population.
 about 700–1000 million (10–15 percent) of the Adam Smith – Father of modern economics. “There is
world’s 6.5 billion people (5.3 billion in no equal distribution of wealth”
developing countries) are poor or living on no
more than $1 a day. GROWTH AND DEVELOPMENT

Absolute poverty- A situation of being unable to meet  Economic growth refers to increases in a
the minimum levels of income, food, clothing, health country's production or income per capita.
care, education, shelter, and other essentials.  Income per capita - Total gross national
income of a country divided by its total
Relative Poverty- When people don’t have enough population.
resources to live up to “normal” standards in a society.
Defined as living below the median (mid-point  Production is usually measured by gross national
income). The criteria will change with economic product (GNP) or gross national income (GNI),
growth. used interchangeably, an economy's total output of
goods and services.
Subsistence economy- An economy in which o Gross national Product (Gnp) The total
production is mainly for personal consumption and the domestic and foreign output claimed by
standard of living yields little more than basic residents of a country.
necessities of life—food, shelter, and clothing o Gross domestic product (GDP) The
total final output of goods and services
produced by the country’s economy,
Development- The process of improving the quality of within the country’s territory, by
all human lives and capabilities by raising people’s residents and nonresidents, regardless of
levels of living, self-esteem, and freedom. its allocation between domestic and
foreign claims
Developing countries- Countries of Asia, Africa, the  Economic development refers to economic
Middle East, Latin America, eastern Europe, and the growth accompanied by changes in output
former Soviet Union that are presently characterized distribution and economic structure.
by low levels of living and other development deficits.  These changes may include:
Used in the development literature as a synonym for  an improvement in the material well-being of
less developed countries the poorer half of the population
 a decline in agriculture's share of GNP and a
More developed countries (MDCs) - The now corresponding increase in the GNP share of
economically advanced capitalist countries of western industry and services
Europe, North America, Australia, New Zealand, and  an increase in the education and skills of the labor
Japan. force
 substantial technical advances originating within
Less developed countries - A synonym for developing the country.
countries
GNI
BRICS (2001) coined by Goldman Sachs, economist,
encompassing countries that have fast growing GNI per capita = Population
 - dollar value of countries final income in a  LMIC- lower middle income countries
year, divided by its population ($746-2,975)
 UMC upper middle countries ($2,976-
 At the UN Millennium Summit in 9,205)
September 2000, world leaders adopted the  HIC High income countries ($9,206 or
Millennium Development Goals (MDGs), more).
using 1990 as a benchmark, set targets for  High income countries are designated as developed
2015. The project is directed by Columbia countries (DCs) or the North.
University’s Jeffrey Sachs  Middle and low income countries as developing,
underdeveloped, or less-developed countries
(LDCs), or the South.
1. ZERO HUNGER reducing the people
suffering from hunger and living on
LIC – these countries often face challenges such
less than a dollar a day
as high poverty rates , limited access to heath care,
2. EDUCATION ensuring that all boys
education and economic instability. EX.
and girls complete primary school
Afghanistan, Haiti, Uganda, Yemen, African
3. GENDER EQUALITY promoting
countries AHUYA
gender equality and empowering
women by eliminating gender
LMIC- have more developed infrastructures and
disparities
social services compared to LICs but still have
4. MORTALITY reducing by two-thirds
significant challenges achieving sustainable
mortality among children under five
development and reducing poverty. EX. India,
years
Indonesia, Vietnam, Kenya. IIVK
5. reducing the percentage of women
dying in childbirth by three-fourths
UMC- have more diversified economies w/ well
6. halting and reversing the spread of
developed industrial sectors and significant
HIV/AIDS, malaria, tuberculosis, and
progress in infrastructure, education, and
other diseases
healthcare. EX. China, Brazil, Russia, Indonesia,
7. ensuring environmental sustainability,
El Salvador
8. developing a global partnership for
development
HIC- typically have well- established, highly
diversified economies, advanced infrastructure
GNP per capita – Is a measure of a country’s
and high standards of living. EX. US, Canada,
economic output that accounts for its population
Japan, South Korea, Singapore, UK, Australia
SUSTAINABLE DEVELOPMENT GOAL
- Such classifications help intern. Org. and
1. NO poverty
gov. to determine where financial
2. Zero Hunger
assistance is most needed. Useful for
3. Good health and well- being
tracking economic progress over time.
4. Quality Education
Allows comparison of living standards.
5. Gender Equality
6. Clean water and sanitation
World Bank – Int’l Financial Institution that
7. Affordable and clean Energy
provides funding, advice and research to
8. Decent work and economic growth
developing countries w/ the goal of reducing
9. Industry, innovation and infrastructure
poverty and promoting sustainable development
10. Reduced inequalities
11. Sustainable cities and communities
PROBLEMS IN COMPARING DEVELOPED
12. Responsible consumption and production
AND DEVELOPING COUNTRIES' GNP
13. Climate action
14. Life below water  International agencies generally do not collect
15. Life on land primary data, getting it from national statistical
16. Peace, justice, and strong institutions agencies which often use different concepts
17. Partnership for goals and methods of data collection.
 The United Nations has not yet successfully
The classification of development used by the standardized these concepts and
World Bank on the basis of per capita GNP methodologies.
 LIC- low-income countries ($745 or less)
  per capita GNI or GNP varies greatly between  Penn researchers Robert Summers and Alan
countries. Heston compute (P) the price level of GNP as the
 developed countries are located in ratio of the purchasing power parity (PPP)
predominantly temperate zones, and LDCs are exchange rate to the actual (or market) exchange
primarily in the tropics. rate.
The PPP exchange rate is that at which the goods and
services comprising gross domestic product cost the
Apart from this discrepancy, the major sources of
same in both countries. Domestic Currency price in
error and imprecision in comparing GNP figures for
terms of US dollars
developed and developing countries are as follows:
A BETTER MEASURE OF ECONOMIC DEVELOPMENT?
1. GNP is understated for developing countries, since a
greater proportion of their goods and services are The Physical Quality of Life Index (PQLI) – used to
produced within the home by family members for assess the quality of life or well-being in different
their own use, rather than for sale in the marketplace. countries.

2. GNP may be understated for developing countries,  Combines three indicators

where household size is substantially larger than that a) infant mortality (the annual number of
in developed countries, resulting in household scale deaths of infants under one year of age per
economies. 1000 live births)

3. GNP may be overstated for developed countries, b) life expectancy – means to combat illness,
since a number of items included in their national live in good condition. This measures the
average number of years a person is
incomes are intermediate goods, reflecting the costs
expected to live beyond their 1st birthday.
of producing or guarding income.
4. The exchange rate used to convert GNP in local c) adult literacy rate- the ability to read and
currency units into U.S. dollars, if market clearing, is write in any language, basic marh
based on the relative prices of internationally traded
 The first two variables represent the effects of
goods. However, GNP is understated for developing
nutrition, public health, income, and the general
countries because many of their cheap,
environment.
labor-intensive, unstandardized goods and services  Life expectancy is positively correlated with GNP
have no impact on the exchange rate, since they are per capita through the impact of GNP on incomes of
not traded. the poor and public spending, especially on health
care; indeed GNP adds no extra explanation to those
5. GNP is overstated for countries (usually developing
of poverty and public health expenditure
countries) where the price of foreign exchange is less  Infant mortality reflects the availability of clean
than a market-clearing price. This overstatement can water, the condition of the home environment, and
result from import barriers, restrictions on access to the mother's health.
foreign currency, export subsidies, or state trading.  Literacy is a measure of well-being as well as a
Which of the following is not a problem in comparing
requirement for a country's economic development.
developed and developing countries’ GNP?
a. GNP is understated for developed
countries, since a number of items included The Human Development Index (HDI)
in
their national incomes are intermediate  The United Nations Development Program (UNDP)
goods defines human development as "a process of
b. The economic contribution of a housewife enlarging people's choices. The most critical ones are
in a peasant family may not be measured in
GNP in poor country.
to lead a long and healthy life, to be educated and
c. GNP is understated for developing enjoy a decent standard of living."
countries since many of their labor-intensive  The HDI summarizes a great deal of social
good performance in a single composite index combining
have no impact on exchange rate since three indicators
they are not traded.
d. GNP is overstated for countries where the
 longevity (a proxy for health and
price of foreign exchange is less than market nutrition)
clearing price.  education
***  living standards.
 Longevity is measured by average life expectancy
MEASURE OF ECONOMIC DEVELOPMENT (in years) at birth, computed by assuming that babies
PURCHASING-POWER PARITY (PPP) born in a given year will experience the current death
rate of each age cohort throughout their lifetime
 Educational attainment is a composite of two -economy diversifies, become more complex,
variables, a 2/3 weight based on the adult literacy living standards improve, more integrated in
rate (in percentage) and a 1/3 weight on the global markets
combined primary, secondary, and tertiary gross 5. Age of High Mass Consumption
enrolment rate (in percentage). -widespread availability of consumer goods
 The indicator for living standards is based on the and services, standard of living is high,
logarithm of per capita GDP in purchasing power disposable income used in luxury goods
parity (PPP) dollars.
 Developed countries already passed all stages.
 Underdeveloped countries are in traditional
Gender-related development index (GDI) and preconditions stage. They must follow
 Measure gender inequality is human development. certain rules to advance
Assesses how well women are doing in comparison *The advanced countries, it was argued, had all
to men in terms of key dimensions of development. passed the stage of “takeoff into self-sustaining
 Based on shares of family income(men & women) growth,” and the underdeveloped countries that
were still in either the traditional society or the
*** “preconditions” stage had only to follow a certain
Classic Theories of Economic Growth and set of rules of development to take off in their turn
Development into self sustaining economic growth.

We explore the historical and intellectual evolution Disposable income- amount of money that an
in scholarly thinking about how and why individual has after taxes have been deducted.
development does or does not take place. We do
this by examining four major and often competing B. Harrod-Domar growth model
development theories. A functional economic relationship in which the
growth rate of gross domestic product (g) depends
4 MAJOR COMPETING THEORIES
directly on the national net savings rate (s) and
1. Linear stages growth Model
inversely on the national capital-output ratio (c). AK
2. Structural-Change Model
3. The International-Dependence Revolution Model
4. Neoclassical Every economy must save a certain proportion of its
national income, if only to replace worn-out or
impaired capital goods (buildings, equipment, and
materials). However, in order to grow, new
1..Development as Growth and the Linear-Stages
Theories investments representing net additions to the capital
stock are necessary.
A. Rostow’s Stages of Growth Capital-output ratio- (K) A ratio that shows the units
Stages-of-growth model of development A theory of
of capital required to produce a unit of output over a
economic development, associated with the
American economic historian Walt W. Rostow, given period of time.
according to which a country passes through Net savings ratio- (S) Savings expressed as a
sequential stages in achieving development. proportion of disposable income over some period of
Acc to him, the transition from underdevelopment
time
to development can be described in terms of a series
of steps or stages through which all countries must Main constraints
proceed.
-relatively low level of new capital formation in most
1. The traditional Society poor countries
-subsistence agriculture, traditional economy,
limited technology Necessary condition
2. The Preconditions for Takeoff into self- A condition that must be present, although it need not
sustaining growth
be in itself sufficient, for an event to occur. For
-Agri to industrial sectors, investment in
example, capital formation may be a necessary
infrastructures
3. the Take-off condition for sustained eco nomic growth (before
-rapid industrial growth , urbanization, surge growth in output can occur, there must be tools to
in innovation, investment produce it). But for this growth to continue, social,
4. The Drive to Maturity institutional, and attitudinal changes may have to
occur.
Sufficient condition Surplus labor
A condition that when present causes or guarantees The excess supply of labor over and above the quantity
that an event will or can occur; in economic models, demanded at the going free-market wage rate. In the
a condition that logically requires that a statement Lewis two-sector model of economic development,
must be true (or a result must hold) given other surplus labor refers to the portion of the rural labor
assumptions. force whose marginal productivity is zero or negative.
2. STRUCTURAL CHANGE MODEL Criticisms of the Lewis Model
Although the Lewis two-sector development model is
-focuses on the mechanism by which underdeveloped simple and roughly reflects the historical experience of
economies transform their domestic economic economic growth in the West, four of its key
structures from a heavy emphasis on traditional assumptions do not fit the institutional and economic
subsistence agriculture to a more modern, more realities of most contemporary developing countries.
urbanized, and more industrially diverse 1. First, the model implicitly assumes that the
manufacturing and service economy. rate of labor transfer and employment creation
in the modern sector is proportional to the rate
-It employs the tools of neoclassical price and resource of modern-sector capital accumulation. The
allocation theory and modern econometrics to faster the rate of capital accumulation, the
describe how this transformation process takes place. higher the growth rate of the modern sector
and the faster the rate of new job creation. But
- The hypothesis that underdevelopment is due to what if capitalist profits are reinvested in more
underutilization of resources arising from structural sophisticated laborsaving capital equipment
or institutional factors that have their origins in both rather than just duplicating the existing capital,
domestic and international dualism. Development as is implicitly assumed in the Lewis model?
therefore requires more than just accelerated capital 2. The second questionable assumption of the
formation. Lewis model is the notion that surplus labor
exists in rural areas while there is full
-The process of transforming an economy in such a employment in the urban areas. Most
way that the contribution to national income by the contemporary research indicates that there is
manufacturing sector eventually surpasses the little surplus labor in rural locations. True,
contribution by the agricultural sector. More there are both seasonal and geographic
generally, a major alteration in the industrial exceptions to this rule.
composition of any economy. 3. The third dubious assumption is the notion of a
competitive modern-sector labor market that
Two well-known representative examples of the guarantees the continued existence of constant
structural-change approach are real urban wages up to the point where the
supply of rural surplus labor is exhausted.
1. “two-sector surplus labor” theoretical 4. The fourth concern with the Lewis model is its
model of W. Arthur Lewis assumption of diminishing returns in the
2. the “patterns of development” modern industrial sector. Yet there is much
empirical analysis of Hollis B. evidence that increasing returns prevail in that
Chenery and his coauthors sector, posing special problems for
development policymaking.
Lewis two-sector model
A theory of development in which surplus labor from Patterns-of-development analysis Hollis B.
the traditional agricultural sector is transferred to the Chenery
modern industrial sector, the growth of which absorbs An attempt to identify characteristic features of the
internal process of structural transformation that a
the surplus labor, promotes industrialization, and
“typical” developing economy undergoes as it
stimulates sustained development. generates and sustains modern economic growth and
In the Lewis model, the underdeveloped economy development
consists of two sectors: a traditional, overpopulated,
Like the earlier Lewis model, the patterns-of-
rural subsistence sector characterized by zero marginal
development analysis of structural change focuses on
labor productivity—a situation that permits Lewis to
the sequential process through which the economic,
classify this as surplus labor in the sense that it can be industrial, and institutional structure of an
withdrawn from the traditional agricultural sector underdeveloped economy is transformed over time to
without any loss of output—and a high-productivity permit new industries to replace traditional agriculture
modern, urban industrial sector into which labor from as the engine of economic growth. However, in
the subsistence sector is gradually transferred.
contrast to the Lewis model and the original stages Certain groups in the developing countries (including
view of development, increased savings and landlords, entrepreneurs, military rulers, merchants,
investment are perceived by patterns-of-development salaried public officials, and trade union leaders) that
analysts as necessary but not sufficient conditions for enjoy high incomes, social status, and political power
economic growth. constitute a small elite ruling class whose principal
In addition to the accumulation of capital, both interest, knowingly or not, is in the perpetuation of the
physical and human, a set of interrelated changes in the international capitalist system of inequality and
economic structure of a country are required for the conformity in which they are rewarded.
transition from a traditional economic system to a
modern one. These structural changes involve virtually Neocolonial dependence model A model whose main
all economic functions, including the transformation of proposition is that underdevelopment exists in
production and changes in the composition of developing countries because of continuing
consumer demand, international trade, and resource exploitative economic, political, and cultural policies
use as well as changes in socioeconomic factors such of former colonial rulers toward less developed
as urbanization and the growth and distribution of a countries.
country’s population
Underdevelopment An economic situation
3.The International-Dependence Revolution characterized by persistent low levels of living in
Essentially, international-dependence models view conjunction with absolute poverty, low income per
developing countries as beset by institutional, political, capita, low rates of economic growth, low
and economic rigidities, both domestic and consumption levels, poor health services, high death
international, and caught up in a dependence and rates, high birth rates, dependence on foreign
dominance relationship with rich countries. economies, and limited freedom to choose among
activities that satisfy human wants.
Within this general approach are three major streams Center – developed
of thought: Periphery – developing countries
1. the neocolonial dependence model
2. the false-paradigm model The False-Paradigm Model
3. the dualistic-development thesis -The proposition that developing countries have failed
to develop because their development strategies
Dependence - The reliance of developing countries on (usually given to them by Western economists) have
developed-country economic policies to stimulate their been based on an incorrect model of development, one
own economic growth. Dependence can also mean that that, for example, overstresses capital accumulation or
the developing countries adopt developed-country market liberalization without giving due consideration
education systems, technology, economic and political to needed social and institutional change.
systems, attitudes, consumption patterns, dress, and so -attributes underdevelopment to faulty and
on. inappropriate advice provided by well-meaning but
Dominance - In international affairs, a situation in often uninformed, biased, and ethnocentric
which the developed countries have much greater international “expert” advisers from developed-country
power than the less developed countries in decisions assistance agencies and multinational donor
affecting important international economic issues, such organizations.
as the prices of agricultural commodities and raw
materials in world markets. Trade protectionism is an economic policy where a
country imposes restrictions on imports from other nations
to protect its domestic industries from foreign competition.
These policies are designed to help domestic businesses
The Neocolonial Dependence Model grow and survive by making foreign goods more expensive
The first major stream, which we call the neocolonial or less accessible, allowing local industries to expand
dependence model, is an indirect outgrowth of Marxist without facing pressure from cheaper or more efficient
thinking. It attributes the existence and continuance of producers abroad.
underdevelopment primarily to the historical evolution Common Forms of Trade Protectionism:
of a highly unequal international capitalist system of 1. Tariffs:
rich country–poor country relationships. Whether o A tax imposed on imported goods, making
because rich nations are intentionally exploitative or them more expensive than locally
unintentionally neglectful, the coexistence of rich and produced goods.
poor nations in an international system dominated by o Example: If a country places a tariff on
such unequal power relationships between the center imported cars, domestic cars may become
more attractive to consumers due to lower
(the developed countries) and the periphery (the
prices.
developing countries) renders attempts by poor nations 2. Quotas:
to be self-reliant and independent difficult and some
times even impossible.
 o A limit on the quantity of a particular Challenging the Statist Model: Free Markets, Public
good that can be imported during a Choice, and Market-Friendly Approaches
specific period.
o Example: A country may set a quota on In the 1980s, the political ascendancy of conservative
how much steel can be imported to limit governments in the United States, Canada, Britain, and
foreign steel competition. West Germany came with a neoclassical
The Dualistic-Development Thesis counterrevolution in economic theory and policy. In
The coexistence of two situations or developed nations, this counterrevolution favored
phenomena (one desirable and the other not) that are supply-side macroeconomic policies, rational
mutually exclusive to different groups of society—for expectations theories, and the privatization of public
example, extreme poverty and affluence, modern and corporations. In developing countries, it called for
traditional economic sectors, growth and stagnation, freer markets and the dismantling of public ownership,
and higher education among a few amid large-scale statist planning, and government regulation of
illiteracy. economic activities. Neoclassicists obtained
controlling votes on the boards of the world’s two
Dualism is the existence and persistence of substantial most powerful international financial agencies—the
and even increasing divergences between rich and poor World Bank and the International Monetary Fund.
nations and rich and poor peoples on various levels.
Neoclassical counterrevolution The 1980s resurgence
1. Different sets of conditions, of which some are of neoclassical free-market orientation toward
“superior” and others “inferior,” can coexist in a given development problems and policies, counter to the
space. Examples of this element of dualism include interventionist dependence revolution of the 1970s
Lewis’s notion of the coexistence of modern and
traditional methods of production in urban and rural Free markets The system whereby prices of
sectors; the coexistence of wealthy, highly educated commodities or services freely rise or fall
elites with masses of illiterate poor people; and the when the buyer’s demand for them rises or
dependence notion of the coexistence of powerful and falls or the seller’s supply of them decreases or
wealthy industrialized nations with weak, increases.
impoverished peasant societies in the international Law of Demand (inverse curve)
economy. Law of Supply (direct re. with price)
2. This coexistence is chronic and not merely
transitional. It is not due to a temporary phenomenon, The Law of Demand states that, all else being
in which case, time could eliminate the discrepancy equal, the quantity demanded of a good or
between superior and inferior elements. In other service decreases as its price increases, and
words, the international coexistence of wealth and conversely, the quantity demanded increases
poverty is not simply a historical phenomenon that will as the price decreases. This creates an inverse
be rectified in time. Although both the stages-of relationship between price and demand,
growth theory and the structural-change models meaning people generally buy more of a
implicitly make such an assumption, to proponents of product when it is cheaper and less when it
the dualistic development thesis, growing international becomes more expensive. The law operates
inequalities seem to refute it. under the assumption of "ceteris paribus,"
3. Not only do the degrees of superiority or inferiority meaning that other factors like income,
fail to show any signs of diminishing, but they even consumer preferences, and the prices of related
have an inherent tendency to increase. For example, goods remain constant.
the productivity gap between workers in developed
countries and their counterparts in most developing The Law of Supply states that, all else being
countries seems to widen. equal, the quantity of a good or service that
4. The interrelations between the superior and inferior producers are willing to supply increases as its
elements are such that the existence of the superior price rises, and conversely, the quantity
elements does little or nothing to pull up the inferior supplied decreases as the price falls. This
element, let alone “trickle down” to it. In fact, it may creates a direct relationship between price and
actually serve to push it down—to “develop its supply, meaning that higher prices incentivize
underdevelopment.” producers to supply more of a product, while
lower prices discourage production. The law
Autarky- A closed economy that attempts to be of supply assumes that other factors, such as
completely self-reliant production costs and technology, remain
constant (ceteris paribus).
4. The Neoclassical Counterrevolution: Market
Fundamentalism Public-choice theory, also known as the new political
economy approach, goes even further to argue that
governments can do (virtually) nothing right. This is capital separately and constant returns to both factors
because public-choice theory assumes that politicians, jointly.
bureaucrats, citizens, and states act solely from a self-
interested perspective, using their power and the Solow neoclassical growth model Growth model in
authority of government for their own selfish ends. which there are diminishing returns to each factor of
Citizens use political influence to obtain special production but constant returns to scale. Exogenous
benefits (called “rents”) from government policies technological change generates long term economic
(e.g., import licenses or rationed foreign exchange) growth.
that restrict access to important resources. Politicians
use government resources to consolidate and maintain
positions of power and authority. The net result is not Capital-labor ratio The number of units of capital per
only a misallocation of resources but also a general unit of labor.
reduction in individual freedoms. The conclusion,
therefore, is that minimal government is the best Closed economy An economy in which there are no
government. foreign trade transactions or other economic contacts
with the rest of the world.
Government Rationing Devices:
Quotas Open economy An economy that practices foreign
Price trade and has extensive financial and nonfinancial
contacts with the rest of the world.
Market-friendly approach
-is a variant on the neoclassical counter revolution
associated principally with the 1990s writings of the
World Bank and its economists, many of whom were
more in the free-market and public-choice camps
during the 1980s.15 This approach recognizes that
there are many imperfections in developing-country
product and factor markets and that governments do
have a key role to play in facilitating the operation of
markets through “nonselective” (market-friendly)
interventions— for example, by investing in physical
and social infrastructure, health care facilities, and
educational institutions, and by providing a suitable
climate for private enterprise.
-The notion historically promulgated by the World
Bank that successful development policy requires
governments to create an environment in which
markets can operate efficiently and to intervene only
selectively in the economy in areas where the market is
inefficient.

Market failure A market’s inability to deliver its

theoretical benefits due to the existence of market
imperfections such as monopoly power, lack of factor
mobility, significant externalities, or lack of
knowledge. Market failure often provides the
justification for government intervention to alter the
working of the free market

Traditional Neoclassical Growth Theory

The Solow neoclassical growth model in particular
represented the seminal contribution to the neoclassical
theory of growth and later earned Robert Solow the
Nobel Prize in economics. It differed from the Harrod-
Domar formulation by adding a second factor, labor,
and introducing a third independent variable,
technology, to the growth equation. Unlike the fixed-
coefficient, constant returns-to-scale assumption of the
Harrod-Domar model, Solow’s neoclassical growth
model exhibited diminishing returns to labor and