Solow (1957) “Technical Change and the Aggregate Production Function”

1. Solow (1957) “Technical Change and the Aggregate Production Function” • Robert Solow won a Nobel prize for his work on economic growth that identified the importance of technological progress • This discovery proceeded from an attempt to decompose GDP growth into growth attributable to inputs into the aggregate production function (aggregate capital and labor) • Today, virtually all economists believe that social welfare improvements in the long run depend more on economic growth and improvements in labor productivity than on other macroeconomic factors • Technological progress, managerial improvements, and innovation in general are regarded as key contributors to economic growth

2. Empirical Approach

3. Formal Analysis

4. Some Microeconomic Theory

5. Further Analysis

6. Technical Progress as a Residual

7. One Additional Consideration: Returns to Scale

8. Results

9. Conclusions • Solow’s analysis has been followed by many studies of economic growth and many attempts to decompose growth into contributing factors using more complex formulations that allow for such factors as human capital, technological improvements embodied in plants and equipment, multiple sectors, and so on • Many growth economists disagree about the fraction of economic growth that can be explained by technological progress, but virtually all agree it is important • Solow’s analysis also gives us one simple way to conceptualize innovation: all improvements in output that cannot be attributed to growth in quantities of inputs such as labor and capital