Solovia Revisited - An Extension of the Solowian Growth Model

In this study an Extended Version of the Solowian growth model is presented and its properties are compared with those of the original model. In the Solowian model the forces behind the growth process are exogenous and disembodied. In the Extended Model technological change is divided into two parts. One disembodied component related to the input of labor, measured in efficiency units, and one embodied component related to technical change. The disembodied labor component is endogenously determined by the real wage rate, while the embodied technical component is exogenous. The principal result of the study is that in the short and medium term a change in the savings ratio has a larger effect on the rate of growth in the Extended Model than in the original Solowian model. Also, while the equilibrium growth rate of production and that of the capital stock are the same in the original model, this is not the case in the Extended Model. In the Extended Model the equilibrium growth rate of production is smaller than that of the capital stock, measured in efficiency units.