Abesalom Webb / Int.J.Mgmt.Res.&Econ.

4(2) (2024) 18-24 Page 18 of 24

Abesalom Webb / Int.J.Mgmt.Res.&Econ. 4(2) (2024) 18-24
https://doi.org/10.51483/IJMRE.4.2.2024.18-24 ISSN: 2710-141X

International Journal of Management

Research and Economics
SvedbergOpen Publisher's Home Page: https://www.svedbergopen.com/
DISSEMINATION OF KNOWLEDGE

Research Paper Open Access

Revisiting the Solow Growth Model a Theoretical Examination of

Technological Progress in Developing Economies
Abesalom Webb1* iD
1
Phillips Exeter Academy, Exeter, New Hampshire, United States. E-mail: azwebb@exeter.edu

Abstract
The Solow-Swan growth model, formulated independently by Robert Solow (1956) and
Trevor Swan (1956), remains a cornerstone in the theoretical foundation of economic
growth. It provides a framework to understand the dynamics of economic growth,
emphasizing the roles of capital accumulation, labor growth, and, crucially, technological
progress. The model’s elegance and simplicity have made it a fundamental tool in economics,
offering insights into the determinants of long-term growth and the convergence of income
levels across economies. However, despite its widespread acclaim and utility, the Solow
Article Info
Model’s treatment of technological progress—assumed to be exogenous—has been a point
Volume 4, Issue 2, July 2024 of contention, especially when applied to developing economies. These economies often
Received : 11 January 2024
face distinct challenges, including limited access to technology, barriers to innovation, and
structural constraints, which can significantly influence their growth trajectories and the
Accepted : 29 April 2024
applicability of the Solow Model’s predictions. This paper aims to critically examine the
Published : 05 July 2024
Solow Growth Model, with a particular focus on the aspect of technological progress in the
doi: 10.51483/IJMRE.4.2.2024.18-24 context of developing economies. We argue that while the model provides a valuable starting
point for understanding growth dynamics, its conventional formulation may not fully
capture the complexities associated with technological advancement in less developed
contexts. The importance of this investigation stems from the ongoing need to refine economic
theories to better reflect the realities of a diverse global economy, where the mechanisms of
growth and development can differ markedly from those presupposed in more generalized
models. Through a detailed theoretical examination, this paper will highlight the limitations
inherent in the Solow Model’s original assumptions about technology and explore potential
modifications and extensions that can enhance its relevance and applicability to developing
economies. By doing so, it contributes to the broader discourse on economic growth,
offering insights that could inform more effective and nuanced development policies. In
pursuit of this objective, the paper will navigate through a series of analytical dimensions,
beginning with a comprehensive overview of the Solow Model, followed by a critical
assessment of its approach to technological progress, and culminating in a discussion of
theoretical and empirical adaptations that attempt to reconcile the model with the
developmental realities of economically diverse nations.
Keywords: Economic growth, Slow growth model, Growth dynamics, Global economy
© 2024 Abesalom Webb. This is an open access article under the CC BY license
(https://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution,
and reproduction in any medium, provided you give appropriate credit to the original author(s)
and the source, provide a link to the Creative Commons license, and indicate if changes were made.

* Corresponding author: Abesalom Webb, Phillips Exeter Academy, Exeter, New Hampshire, United States. . E-mail: azwebb@exeter.edu

2710-141X/© 2024. Abesalom Webb. This is an open access article distributed under the Creative Commons Attribution License, which
permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Abesalom Webb / Int.J.Mgmt.Res.&Econ. 4(2) (2024) 18-24 Page 19 of 24

1. Introduction
1.1. Overview of the Solow Growth Model
The Solow-Swan model, henceforth referred to as the Solow Model, was introduced as a fundamental framework for
analyzing the dynamics of economic growth, with an emphasis on non-monetary factors such as capital accumulation,
labor growth, and technological progress. This model posits that long-term economic growth is driven by these three
core components, under the assumption of diminishing returns to capital and labor, yet with constant returns to scale
when these inputs are combined (Solow, 1956; Swan, 1956).

1.1.1. Basic Assumptions

The model is predicated on several critical assumptions. Firstly, it assumes a closed economy with a single composite
good that can be either consumed or invested, with no government or trade sectors influencing economic dynamics.
The production function is typically represented by a Cobb-Douglas form, Y = AKL1-, where Y denotes output, A
represents technology (a measure of total factor productivity), K is capital, L is labor, and 0 <  < 1 reflects the output
elasticity of capital, assuming constant returns to scale such that  + (1 – ) = 1.

1.1.2. Key Components

Capital Accumulation: The change in capital stock over time (dk/dt) is determined by investment (which is a fixed
fraction of output) minus depreciation. The investment function is derived from savings, with the savings rate assumed
to be exogenously determined and constant over time.
Labor Growth: The model incorporates a constant exogenous rate of labor growth, n, reflecting demographic trends.
Labor growth affects the output through scale but does not inherently affect per capita output growth in the steady
state.
Technological Progress: Technological advancement is modeled as exogenous, growing at a constant rate, g, and is
labor-augmenting, implying that it makes labor more productive over time without directly influencing the marginal
productivity of capital.

1.1.3. Model Dynamics

The core insight of the Solow Model lies in its prediction of a steady-state equilibrium where the economy grows at a
constant rate, driven solely by technological progress, as capital deepening and labor growth have no long-term effects
on growth rates per capita. In the steady-state, capital per effective worker, k*= K/(AL), and the output per effective
worker, y*= Y/(AL), remain constant, even as the actual levels of capital, labor, and output grow. This leads to the key
implication that differences in savings rates, capital stock, or labor growth across countries only affect the level of
income in the long run, not the growth rate, which is dictated by the rate of technological progress.
The convergence hypothesis, a fundamental prediction of the Solow Model, suggests that all economies, irrespective
of their initial capital stock, will eventually converge to the same steady-state growth rate, although not necessarily to
the same level of per capita income. This is contingent on economies having similar savings rates, depreciation rates,
rates of technological progress, and preferences.
In essence, the Solow Model elegantly decomposes the sources of economic growth and sets the stage for a
nuanced understanding of the roles played by capital accumulation, labor expansion, and, most pertinently for this
analysis, technological advancement. However, the assumption of exogenous technological progress—while simplifying
the analysis—limits the model’s ability to fully encapsulate the complexities and drivers of technological innovation,
particularly in the context of developing economies where endogenous factors, such as education, institutional quality,
and policy choices, play a significant role in shaping the trajectory of technological development and economic growth.

2. Technological Progress in the Solow Model

The Solow-Swan growth model posits technological progress as the sine qua non for sustained economic growth in the
long term, attributing to it the capacity to enhance the productivity of inputs and thus propel economies toward higher
states of output without necessitating proportional increases in capital or labor. This fundamental proposition, while
elegantly simple, operates under the premise of technological progress as an exogenously determined variable, evolving
independently of the economic system’s internal dynamics. The ensuing discourse critically appraises this premise,
exploring its conceptual underpinnings, the implications of its limitations, particularly for developing economies, and
the scholarly endeavors to integrate endogenous mechanisms of technological innovation within the theoretical
constructs of economic growth models.
Abesalom Webb / Int.J.Mgmt.Res.&Econ. 4(2) (2024) 18-24 Page 20 of 24

2.1. The Conceptualization of Technology in Economic Growth

In the Solow framework, technology functions as a labor-augmenting force, a lever that magnifies the productive
capacity of labor, thereby facilitating increases in output that are not contingent upon parallel augmentations in capital
or labor inputs. This conceptualization is manifest in the model’s specification of a production function, typically of the
Cobb-Douglas form, where technological progress shifts the production possibility frontier outward, reflecting an
economy’s enhanced capability to produce more with the same input bundle.

2.2. The Exogeneity of Technological Progress: A Critical Perspective

The exogeneity of technological progress, a foundational assumption of the Solow model, simplifies the analysis of
growth by isolating technology as an independent driver. However, this abstraction from the complexities of technological
innovation—its genesis, adoption, and diffusion—presents a critical oversight, particularly egregious in the context of
developing economies. These economies often grapple with multifarious barriers to technological absorption and
innovation, including but not limited to infrastructural inadequacies, deficits in human capital, and institutional vacuums.
The assumption that technological progress is equally accessible and adoptable across different economic contexts
glosses over these disparities, thereby rendering the model’s prognostications on economic convergence somewhat
idealistic.
Moreover, the exogenous treatment precludes an examination of the feedback loops between economic growth and
technological innovation, overlooking how economic structures, policy environments, and investment in research and
development can influence the pace and direction of technological progress. This gap in the Solow model attenuates its
descriptive and prescriptive potency for economies where technology’s role is not merely passive adoption but active
innovation driven by endogenous factors.

2.3. Toward Endogeneity: Extending the Growth Paradigm

The limitations inherent in the exogenous treatment of technological progress have catalyzed scholarly endeavors to
theorize and model technology’s endogenous evolution. Pioneering contributions by Romer (1990) and Lucas (1988)
have been instrumental in this regard, positing models wherein technological innovation emerges as a consequence of
economic decisions and investments. These models foreground the role of human capital, research and development
expenditures, and policy frameworks in fostering an environment conducive to innovation. Endogenous growth theory,
thus, enriches the discourse on economic growth by recognizing technology not as a deus ex machina but as an integral
outcome of the economic process, shaped by and shaping the economy’s growth trajectory.

2.4. Implications for Developmental Economics

The discourse on the endogenization of technological progress bears profound implications for developing economies.
It underscores the necessity of a paradigmatic shift from viewing technology as an exogenous artifact to recognizing it
as a malleable outcome of targeted policies, investments, and institutional reforms. This perspective opens avenues for
policy interventions aimed at catalyzing technological innovation and diffusion, thereby offering a more actionable
framework for leveraging technology in the pursuit of economic development and convergence.

3. Critiques And Extensions of the Solow Model

The exogenous treatment of technological progress within the Solow growth framework has served as a catalyst for
extensive scholarly critique and subsequent theoretical advancements. This section delineates the contours of these
critiques and the diverse extensions that have been proposed to enrich the model’s applicability and explanatory power,
especially in the context of developing economies. It examines the empirical challenges faced by the Solow model,
delves into theoretical critiques, and explores the significant extensions that have attempted to incorporate endogenous
growth factors, thereby offering a nuanced understanding of the dynamics of economic growth.

3.1. Empirical Challenges to the Solow Model

The empirical scrutiny of the Solow model has unveiled discrepancies between its predictions and observed economic
outcomes. Notably, the model’s convergence hypothesis—that economies with lower initial levels of per capita income
should grow faster than wealthier economies, conditional on similar savings rates, population growth rates, and
technological advancement—has not been universally observed. Instead, empirical investigations have often highlighted
persistent disparities in growth rates and income levels across countries, suggesting that factors beyond those
encapsulated by the Solow model play critical roles in economic development. Such empirical challenges have necessitated
a reevaluation of the model’s assumptions and its capacity to account for the varied trajectories of economic growth
witnessed globally.
Abesalom Webb / Int.J.Mgmt.Res.&Econ. 4(2) (2024) 18-24 Page 21 of 24

3.2. Theoretical Critiques of the Exogenous Framework

The Solow model’s foundational assumption of technological progress as exogenous has been a focal point of theoretical
critique. This assumption abstracts from the reality that technological innovation is often a byproduct of economic
activities, including research and development (R&D) investments, human capital accumulation, and policy-driven
incentives for innovation. The model’s neglect of these endogenous drivers of technological progress limits its ability
to fully explain the sources of economic growth and the observed disparities among nations, especially between
developed and developing economies. Critics argue that the model’s framework oversimplifies the complex interplay
between technology, economic structures, and institutional contexts. It overlooks how factors such as government
policies, intellectual property rights, and the educational system can influence the rate and direction of technological
advancement. Furthermore, the assumption that all economies have access to the same technology at the same rate fails
to account for the barriers to technology transfer and the significant investments required to adapt and implement new
technologies within different socio-economic contexts.

3.3. Extensions and Adaptations: Toward Endogenous Technological Change

In response to these critiques, a significant body of research has emerged, aimed at extending the Solow model to
incorporate mechanisms of endogenous growth. Central to this endeavor is the work of scholars like Romer (1990) and
Lucas (1988), who have developed models that integrate human capital and innovation activities as intrinsic drivers of
economic growth. These models propose that economic growth can be sustained internally through investments in human
capital, R&D, and knowledge spillovers, challenging the Solow model’s premise of diminishing returns to capital and labor.
Romer’s model, for instance, emphasizes the role of R&D in generating new technological knowledge, positing that such
activities lead to increasing returns to scale and sustained growth, even in the absence of exogenous technological
progress. Lucas, on the other hand, focuses on human capital accumulation as a critical driver of growth, suggesting that
investments in education and training can enhance the productivity of the workforce and spur economic development.
These endogenous growth models offer a richer theoretical framework for understanding the dynamics of technological
innovation and its implications for economic growth. They highlight the importance of policy interventions in R&D,
education, and the creation of conducive institutional environments for innovation. By doing so, they provide valuable
insights into the strategies that developing economies can employ to catalyze growth and achieve economic convergence.

4. Implications for Developing Economies

The theoretical critiques and extensions of the Solow model underscore the complexity of economic growth processes
and the need for a more nuanced understanding of the role of technological progress. For developing economies, the
shift toward endogenous growth models illuminates the pathways through which targeted policies and investments in
human capital, innovation, and institutional reforms can drive sustained economic development. These insights challenge
policymakers to rethink strategies for leveraging technology and knowledge as engines of growth, emphasizing the
critical role of domestic policy choices and investments in shaping the future trajectory of their economies.

5. Relevance Of The Solow Model To Developing Economies

The application of the Solow growth model to developing economies necessitates a nuanced interpretation, acknowledging
both its foundational insights and its limitations in capturing the complexities of economic development. This section
explores the unique challenges faced by developing economies, examines the implications of technological progress within
the Solow framework for these contexts, and discusses the policy implications emerging from this analysis.

5.1. Unique Challenges of Developing Economies

Developing economies are characterized by distinct structural and institutional challenges that differentiate their growth
trajectories from those anticipated by the Solow model. These include, but are not limited to, lower levels of capital
accumulation, constraints in human capital development, infrastructural deficiencies, and less efficient institutional
frameworks. Furthermore, the model’s assumption of a homogeneous global technological frontier accessible to all
economies overlooks the significant barriers to technology transfer and adaptation faced by developing countries, such
as limited access to knowledge networks, inadequate investment in research and development, and the absence of
supportive policy environments.

5.2. Technological Progress and Economic Development

Within the Solow framework, technological progress emerges as a critical lever for economic growth, posited as an
exogenous force driving increases in output per capita. However, the exogeneity of technology belies the active role that
Abesalom Webb / Int.J.Mgmt.Res.&Econ. 4(2) (2024) 18-24 Page 22 of 24

developing economies can play in fostering technological innovation and adaptation. Developing economies often
exhibit significant heterogeneity in their ability to absorb, adapt, and innovate technologies, influenced by factors such
as government policy, the educational system, and the regulatory environment. This underscores the need for a more
dynamic interpretation of the Solow model, one that recognizes the potential for policy and institutional reforms to
mediate the relationship between technological progress and economic development.

5.3. Policy Implications

The insights gleaned from the Solow model, coupled with its critiques and extensions, offer valuable policy implications
for developing economies. First, the model highlights the importance of capital accumulation and human capital
development as foundations for growth, underscoring the need for investments in infrastructure, education, and healthcare.
Second, recognizing the limitations of the model’s treatment of technology suggests that developing economies must
prioritize policies that foster innovation, including support for research and development, protection of intellectual
property rights, and facilitation of technology transfer.
Moreover, the model’s convergence hypothesis, despite its empirical challenges, emphasizes the potential for
developing economies to achieve higher growth rates through effective policy interventions aimed at overcoming
structural barriers to capital accumulation and technological progress. This necessitates a multifaceted policy approach
that addresses both the supply side (e.g., incentives for investment in physical and human capital) and the demand side
(e.g., creation of markets for new technologies) of economic development. Furthermore, the dialogue surrounding
endogenous growth theories reinforces the significance of creating an enabling environment for innovation. Developing
economies can leverage these insights to design policies that stimulate domestic innovation ecosystems, enhance the
absorptive capacity of firms and industries, and cultivate linkages between education, industry, and government that
are conducive to sustained economic growth.

5.4. Implications for Developing Economies

In essence, while the Solow model provides a valuable framework for understanding the determinants of economic
growth, its application to developing economies requires a critical appraisal of its assumptions and limitations. The
challenges and opportunities inherent in these economies necessitate adaptive strategies that not only focus on capital
accumulation and labor growth but also actively promote technological innovation and institutional reforms. By embracing
a more holistic approach to economic development, one that integrates the insights of the Solow model with the nuances
of endogenous growth theories, developing economies can better navigate the complexities of the modern global
economyand chart pathways toward sustainable growth and development.

6. Theoretical Examination of Case Studies

In the quest to distill theoretical constructs into actionable insights for developing economies, the examination of
empirical case studies becomes indispensable. This revised section extends the analysis, infusing additional technical
depth to underscore the multifaceted nature of technological progress and its implications for economic development,
through the lens of distinctive national experiences.

6.1. Successful Implementations of Technological Progress

The Republic of Korea exemplifies the virtuous cycle generated by aligning policy, education, and technology. A pivotal
aspect of South Korea’s success lies in the government’s strategic approach to intellectual property rights (IPR) and its
role in incentivizing domestic innovation while attracting foreign technologies. This strategic alignment between policy
measures and the technological ecosystem facilitated a significant increase in the domestic patent filings, a proxy for
innovation, thereby enhancing the country’s technological base. The Korean experience illuminates the critical interplay
between IPR policies, government-led R&D investments, and the cultivation of a skilled workforce, as advocated by
endogenous growth theories which posit that policy levers can significantly influence the rate and direction of
technological progress and, by extension, economic growth trajectories.

6.2. Limitations and Challenges: The African Context

In contrast, the experience of Sub-Saharan Africa reveals the intricacies of embedding technological progress within the
broader economic development strategy. A critical technical barrier has been the ‘technology-education mismatch,’
where the available technological advances are not complemented by a sufficiently skilled labor force capable of
leveraging these technologies effectively. This mismatch underscores the significance of human capital development as
a prerequisite for technological absorption, a concept central to both the Solow model’s focus on labor productivity and
Abesalom Webb / Int.J.Mgmt.Res.&Econ. 4(2) (2024) 18-24 Page 23 of 24

endogenous growth theories’ emphasis on education and human capital investment. Addressing this mismatch through
targeted educational reforms and vocational training programs is essential for enhancing the absorptive capacity of
these economies, thereby enabling a more effective translation of technological potential into economic growth.

6.3. Policy Implications and Strategic Interventions

Singapore’s trajectory as a high-tech hub underscores the pivotal role of strategic policy frameworks in cultivating an
environment conducive to innovation. A technical cornerstone of Singapore’s policy success has been the establishment
of the Research, Innovation and Enterprise (RIE) strategy, which delineates a comprehensive roadmap for R&D investment
across public and private sectors. By channeling resources into priority areas such as biomedical sciences, clean
technologies, and digital media, the RIE strategy illustrates a targeted approach to fostering innovation ecosystems.
This policy coherence, aligned with the principles of endogenous growth theory, highlights the importance of government
vision and strategic planning in marshaling resources towards sectors with the highest potential for growth and
technological advancement.

6.4. Implications for Developing Economies

The augmented analysis of these case studies not only reinforces the significance of technology in the economic
development narrative but also crystallizes the essential role of strategic policy interventions in optimizing the benefits
of technological progress. For developing economies, the imperative to navigate the complex interdependencies between
technology, education, and policy necessitates a granular approach to policy formulation. This entails not just investments
in technology and human capital but also the development of a robust policy ecosystem that encourages innovation,
ensures the alignment of education with technological needs, and fosters an institutional environment that supports the
seamless transfer and adaptation of technologies. Drawing upon both the theoretical frameworks and empirical insights,
developing economies can craft nuanced strategies that leverage technology as a pivotal driver of sustainable economic
growth, underpinned by targeted policy interventions and institutional reforms.

7. Conclusion
The exploration of the Solow growth model, its critiques, extensions, and the empirical realities of developing economies,
culminates in a nuanced understanding of economic growth’s multifaceted nature. This inquiry has traversed from the
foundational premises of the Solow model, highlighting its seminal contribution to conceptualizing the roles of capital,
labor, and technological progress in economic development, to the sophisticated terrain of endogenous growth theories
that underscore the critical role of policy and institutions in fostering innovation and education.
The synthesis of theoretical insights with empirical case studies from economies like South Korea, Sub-Saharan
Africa, and Singapore reveals a complex tapestry of factors influencing economic growth. It underscores that while
technological progress remains a pivotal driver of development, its efficacy and impact are contingent upon the
surrounding ecosystem of policies, institutional frameworks, and human capital development. This discourse illuminates
the limitations of viewing technological progress as an exogenous, uniformly accessible force, advocating instead for a
model of economic growth that recognizes the endogenous generation of technology through strategic policy
interventions and investments.
For developing economies, the pathway to sustainable growth and development is not merely about adopting
external technologies but nurturing an environment that encourages innovation, protects intellectual property, and
aligns education with the demands of a technologically evolving marketplace. This involves a comprehensive approach
that integrates investments in physical and human capital with the creation of an institutional landscape that supports
the dynamics of a knowledge-driven economy.
The evolution of economic growth theory, from the Solow model to its endogenous counterparts, encapsulates a
broader shift in understanding the engines of economic development. It calls for a reimagined role of government, not
as a peripheral actor but as a central architect of the conditions necessary for innovation and growth. The insights
garnered from the theoretical and empirical analysis presented herein advocate for a proactive stance towards economic
policy, one that is attuned to the complexities of technological advancement and poised to leverage it for broad-based
economic development.
In conclusion, the journey from the Solow growth model to the nuanced landscapes of endogenous growth theory
offers a compelling narrative about the evolution of economic thought. It provides a robust framework for understanding
the intricacies of economic growth and development, emphasizing the integral role of technology, policy, and education.
Abesalom Webb / Int.J.Mgmt.Res.&Econ. 4(2) (2024) 18-24 Page 24 of 24

For scholars, policymakers, and practitioners alike, this discourse offers a roadmap for navigating the challenges of
development in the 21st century, highlighting the indispensable role of strategic, informed policy interventions in
harnessing the power of technological progress for the betterment of economies worldwide.

References
Solow, R.M. (1956). A Contribution to the Theory of Economic Growth. Quarterly Journal of Economics, 70(1), 65-94.
Swan, T.W. (1956). Economic Growth and Capital Accumulation. Economic Record, 32(2), 334-361.
Lucas, R.E. (1988). On the Mechanics of Economic Development. Journal of Monetary Economics, 22(1), 3-42.
Romer, P.M. (1990). Endogenous Technological Change. Journal of Political Economy, 98(5), S71-S102.

Cite this article as: Abesalom Webb (2024). Revisiting the Solow Growth Model a Theoretical Examination
of Technological Progress in Developing Economies. International Journal of Management Research and
Economics. 4(2), 18-24. doi: 10.51483/IJMRE.4.2.2024.18-24.