Intro to the Solow Model of Economic Growth
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Here's a quick growth conundrum, to get you thinking. Consider two countries at the close of World War II—Germany and Japan. At that point, they've both suffered heavy population losses. Both countries have had their infrastructure devastated. So logically, the losing countries should’ve been in a post-war economic quagmire. So why wasn't that the case at all? Following WWII, Germany and Japan were growing twice, sometimes three times, the rate of the winning countries, such as the United States. Similarly, think of this quandary: in past videos, we explained to you that one of the keys to economic growth is a country's institutions. With that in mind, think of China's growth rate. China’s been growing at a breakneck pace—reported at 7 to 10% per year. On the other hand, countries like the United States, Canada, and France have been growing at about 2% per year. Aside from their advantages in physical and human capital, there's no question that the institutions in these countries are better than those in China. So, just as we said about Germany and Japan—why the growth? To answer that, we turn to today's video on the Solow model of economic growth. The Solow model was named after Robert Solow, the 1987 winner of the Nobel Prize in Economics. Among other things, the Solow model helps us understand the nuances and dynamics of growth. The model also lets us distinguish between two types of growth: catching up growth and cutting edge growth. As you'll soon see, a country can grow much faster when it's catching up, as opposed to when it's already growing at the cutting edge. That said, this video will allow you to see a simplified version of the model. It'll describe growth as a function of a few specific variables: labor, education, physical capital, and ideas. So watch this new installment, get your feet wet with the Solow model, and next time, we'll drill down into one of its variables: physical capital. Helpful links: Puzzle of Growth: http://bit.ly/1T5yq18 Importance of Institutions: http://bit.ly/25kbzne Rise and Fall of the Chinese Economy: http://bit.ly/1SfRpDL Subscribe for new videos every Tuesday! http://bit.ly/1Rib5V8 Macroeconomics Course: http://bit.ly/1R1PL5x Ask a question about the video: http://bit.ly/1RxdLDT Next video: http://bit.ly/1RxdSzo Help us caption & translate this video! http://amara.org/v/IHQj/
Comments
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came back here to upvote all the videos since it saved me on my econ final lmao thank u !!
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It would have been nice if the title said the Robert Solow model because I just watched half of it and realized that it wasn't the Harrod-Domar Solow model. You seem very helpful but in this case you didn't help with the right thing....
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This video make the model easy to understand for me ...thanks ......now i will able to explain it in my class presentation..👍👌
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I wish you were my Econ instructor , Thank you so much!
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thank you so much for these videos!! i have to write a paper on the solow model and now im not completely in the dark LOL
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LIFESAVER
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Thank you so much for this video!
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I have an exam tomorrow and this helped cover the basics of the Solow Growth model well. Thanks :)
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I'm from Viet Nam but your representations are easy for me to understand.I'm very grateful for your devotion.Hope you finish all of videos of macroeconomic soon.Thank you !
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When I am looking for a quick video to explain uni concepts, I go straight to videos like this. Never to videos with numbers and a whiteboard. Thankyou!!!!!
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These videos are incredibly enlightening and easy to follow. Great job.
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Godspeed to Trump. We The People. End NAFTA Now.
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Pretty simple: a rich man has more trouble doubling his net worth than a pauper. Same for nations: if you have (virtually) nothing, it doesn't take much to double it. Plus, in the case of (West) Germany and Japan, the "west" invested in their growth for ulterior motives (i.e. the Cold War). This was an "externality" that artificially boosted their growth rate.
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It is simple arithmetic. A poor country can grow very fast and can have much less actual growth.
-10% of a million = 100,000 or 2% of a billion = 2,000,000 -Is rebuilding a government building bombed in a war growth or just rebuilding a bombed building?
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