Intro to the Solow Model of Economic Growth

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: bit.ly/1T5yq18
Importance of Institutions: bit.ly/25kbzne
Rise and Fall of the Chinese Economy: bit.ly/1SfRpDL
Subscribe for new videos: bit.ly/1Rib5V8
Macroeconomics Course: bit.ly/1R1PL5x
Next video: bit.ly/1RxdSzo
Help us caption & translate this video!
amara.org/v/IHQj/
00:00 Growth Puzzles
01:54 Solow Model of Economic Growth
02:27 What is an Economic Model?
02:56 Production Function - Labor, Education, Capital, & Ideas

[@ABC2691]

Can we please take a moment to appreciate and thank not just the smart Professor in this video but also the video/sound editors/creators, animators etc who make this concept/theory so easy to understand. The visuals are f*****g amazing. Took me just 5 min to get Solow Model while my University charges me £12K a year to teach this yet fails to.

[@MarginalRevolutionUniversity]

Thank you! I've shared your nice comment with all the folks who worked on that video. -Roman

[@broteinshaketh7629]

fortnite

[@martineden7075]

@@MarginalRevolutionUniversity I am still watching and amazed by the quality of the content and animation! Incredible work

[@jonghvrs]

i pay my university for them to send me this video..

[@ruthanthony7542]

It was like a funny movie watching two times thank you so much more appreciated professor

[@sullyflynn8746]

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!!!!!

[@MarginalRevolutionUniversity]

Thanks, Sully! :D -Meg

[@tiwaowoeye9529]

Hahaa! Im About to be in the same category!!

[@jamesm9534]

I wanted formulas with numbers!

[@skj0811]

These videos are incredibly enlightening and easy to follow. Great job.

[@user-ye2vl1li9d]

Amazing Video, props to the Profs but also to the editors as this video is still amazing 8 years later.

[@mobime6682]

Wow, just awesome , can't wait to catch the rest of the series! Subscribed!!

[@randomrold]

came back here to upvote all the videos since it saved me on my econ final lmao thank u !!

[@MarginalRevolutionUniversity]

Yes! Enjoy your break! -Roman

[@LeoniDAS643]

Thank you so much for this video!

[@rammusfi2344]

Just discovered this and am sooo happy ! Thank you so much !

[@alexsteven8589]

Video is super concise and easy to follow, well thought through. Well done!

[@nadinemcgrath4448]

Great introduction and explanation of something I was having trouble with in a uni course. Thanks

[@user-ww9iw3hi9v]

These videos are the best guide lines…well explained and enlightening

[@mvfplanet]

THANKS - I am a student of Dr. Feilcke (Prof. Weizsäcker) who is a genius in pedagogics and your videos motivate me even more to understand the topics from different points of view.

[@tomasnobrega8087]

This whole series about macroeconomics is superb congratulations for the ]GREAT work

[@happyhans6427]

I have an exam tomorrow and this helped cover the basics of the Solow Growth model well. Thanks :)

[@MarginalRevolutionUniversity]

Glad to hear it, Hans. Good luck on your exam! -Meg

[@PunmasterSTP]

Hey I know it's been a long long time, but I just came across your comment and I was curious. How did that exam go? 😀

[@johnsamy5017]

I am really thankful for your sincere efforts Gentlemen.

[@angelasings24]

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

[@94Cadaver]

This is very useful!!! thank you so much I'm taking a macroeconomic course for my master's degree requirements and I have 0 background on economics. These videos are so helpful

[@fazsav]

I wish you were my Econ instructor , Thank you so much!

[@ananyajain]

thank you so so much for this. truly lifesaving

[@muhammadanas8043]

Very excellent tutorial. Kudos. But I have a question. Why does Solow model use per capita (1/L) variable?

[@Friedrich291]

Great animations! and of course, content. Clear speaker.

[@PunmasterSTP]

With videos of this high quality, I anticipate that eventually our ignorance will be...so low! But in all seriousness, thank you so much for making these!

[@jongzhenwei5244]

This is amazing!! Thanks

[@deisor]

Really helpful video, also awesome practise tests, thanks.

[@DianaRodriguez-yq9yh]

Thank you! you helped me to understand it better

[@user-nf3hh8kn5r]

I'm happy I watched this even though I'm not doing economics at school lol

[@AliAliabe]

Helpful video . Thank You

[@vinitapundir447]

This video make the model easy to understand for me ...thanks ......now i will able to explain it in my class presentation..👍👌

[@MarginalRevolutionUniversity]

Thanks, Vinita! Best of luck with your presentation. -Meg

[@PunmasterSTP]

I know it's been a long long time, but I was just curious. How did the rest of your class go?

[@madridmusic3948]

Excelente canal para entender la economía, saludos desde México!

[@mielke13]

Most wars don't end with winners' generous and benevolent plans to rebuild the losers.

[@GFMkidsComedy]

Outstanding video!

[@Reinatsu22]

I like your explanation. Very nice for beginners like me! :)

[@hamayun1363]

you guys are just amazing. wow!

[@user-se4mw7dq1z]

from the best explained videos ever seen!!

[@skye486]

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 !

[@MarginalRevolutionUniversity]

Thanks, Vân! That's great to hear. Principles of Macroeconomics will be done in the spring of 2017. -Meg

[@Lauraulloalaulau]

1) Thanks a lo for your help. However, I have a question. Does Solow represents better the situation of china? or Lewis?

[@RajeevSingh-dw7xj]

I enjoy watching your videos. I did economics in grad.

[@amaliaameel]

Thank you!!!!

[@tharuabeysekara9749]

Superb explanation. Thank you sir

[@sonder2075]

Thanks!!

[@alparslankorkmaz2964]

Nicely explained

[@ntcuong01ct1]

Dear Friends, Could you explain the meaning of Depreciation rate of this model?. Thank you.

[@christineb1742]

This is great!

[@atulyasinha3765]

thank you so much

[@reccur]

Thank you very much for the explanation. I am still wondering why this channel has < 200K viewers

[@masihullahjan1244]

You guys are amazing. please upload Ramsey cass kopman model, Diamond models, DSG models

[@54Aakash]

good way of explaining

[@jed8211]

How is ideas (letter A variable) measured?

[@nadiahazmi7679]

i like your vid. simple with exercise add on!

[@007MrEmir]

Thanks.

[@clup3136]

Very interesting

[@nematbekaxmedov6272]

Keep going on

[@samaddeoo]

LIFESAVER

[@evabroekhuizen8264]

very good video

[@ivanferraz8914]

According to solow model what drives growth is technology (that includes educated workers)

[@abhijeetvasishtha4627]

Please! make a series on 'Independent India Economic History'. Highly Demanded!!

[@rahmantansia1715]

I have a question, is the Solow model associated to the Neo-classical growth model? I mean, is it the same theory? I’m so sorry but I am so confused right now because in some articles it does refer to the Neo-classical growth theory and in some it doesn’t.

[@yydd4954]

I don't see a reason why it shouldn't be

[@jamesreeves2948]

I understand this is an introduction to the model but I have some questions. First how do you quantify "A"? Second I feel that in the United States we have a problem with over educated individuals working lower skill jobs, would there be a bell curve effect if an economy was too educated? Finally why did he say China had lower human capital than the United States? Is human capital different than population?

[@MengerMania]

I, too, admire the production quality of this video, but the thinking represented here, not so much. One would expect a small economy to grow at a faster RATE than a large economy. It's simple math. Increasing from 1 to 2 in period amounts to a greater rate of growth than and increase from 6 to 7 in the same period.

[@karannchew2534]

Why is it A not I for ideas?

[@bcubed72]

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.

[@amayoka]

Just started on this topic a day ago. Could this also be about decreasing marginal output? These giant economies are already operating at near or past GDP potential. There is no way up but just a little bit up or down

[@user-lv4ge8yg5n]

better than my university lecturer

[@Valentin-oc5nh]

wouldn't the ideas part usually be reffered to as technology?

[@yydd4954]

It refers to many intangible factors But yeah in most cases it is called "technological advancements"

[@jort801]

A war has no winners only losers.

[@marif9213]

For fucks sake this is amazing love it

[@Bulsebub]

1:45 Did he just say that the other countries got more humans than china?

[@renkenner]

At first I thought this (A elk) was a reference to the woman in the Monty Python sketch who had a theory about dinosaurs.

[@jaylenli6262]

A is productivity in short

[@kamilaros3363]

please adding Indonesian subtitle

[@nishanfaith1013]

letter eL = N ?

[@meenakshi1657]

❤

[@mayulmanav3720]

the Prof.'s "China" is just a sophisticated version of that of trump

[@bibimaryamjakipbaeva9857]

How come was the US winner in the World War 2?

[@abbieboswell2318]

No one going to say anything about the claim that china has less human capital the france or Germany? Good vid tho

[@darwin6960]

First, human capital is not equal to population. What he means is that human capital on those said countries is more educated and skilled times their population aka more productive citizen than China at that time. It's reasonable unless you believe otherwise.

[@amandaz537]

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....

[@MarginalRevolutionUniversity]

Hi Amanda! Apologies for the confusion. The Harrod-Domar model came first in the 1930s and the Solow model (or Solow-Swan model) superseded it after its development in the 1950s. I honestly can't say I've ever heard them referenced together as the Harrod-Domar Solow model. Even though we don't reference the Harrod-Domar model, there's only one Solow model, so this series should still be able to help you with your studies. Cheers, Meg

[@PrinceKumar-hh6yn]

Investment in education is the most powerful investment

[@Samtaztic99]

One of my homework questions is 'Give the function of output per effective worker.' Is this just 'f(K/AN)' ?

[@burakeres]

Ich erkläre das Solow-Modell: kzbin.info/www/bejne/jWHZdHmeqs1pqsk Lasst mir ein Kommentar da :)

[@longnewton1]

There are two missing pieces in this model, resources such as iron which are extracted ffrom the planet and waste or externalities such as pollution which are dumped at no cost in this model. To be fair this is a floor in all conventional economics not just these videos.

[@jay4612]

His accent tho

[@bradfordtownsend9698]

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?

[@bcubed72]

+Bradford Townsend (forwardresearch) Yes, that's a known GDP liability: it makes disasters look good, because of the ensuing necessary rebuilding.

[@bradfordtownsend9698]

Statistics can be used by sophists to manipulate the public with only basic math knowledge.

[@GrimFaceHunter]

It's yet one more version of broken window fallacy.

[@bcubed72]

+GrimFaceHunter Explain why it's a fallacy? Just because you don't agree with something, doesn't make it a "fallacy."

[@GrimFaceHunter]

You already explained it in your first comment. It is an erroneous belief that destruction is good for economy.

[@ronfine3284]

xoxo see below cv

[@2rooms19]

wrong flag for Germany during WWII.

[@thomson4420]

the idea could from education. this model is useless

[@davidblumenshine2410]

could really cut it with the propaganda lol

[@robertbeurre1825]

is this just a justification to explain why western economies are falling behind