Describe the mankiw romer weil extension to the neoclassical model to include human capital. Explain why diminishing return to capital do not take place in the AK model??
Answers
The Solow–Swan model is an economic model of long-run economic growth set within the framework of neoclassical economics. It attempts to explain long-run economic growth by looking at capital accumulation, labor or population growth, and increases in productivity, commonly referred to as technological progress. At its core is a neoclassical (aggregate) production function, often specified to be of Cobb–Douglas type, which enables the model "to make contact with microeconomics".[1]:26 The model was developed independently by Robert Solow and Trevor Swan in 1956,[2][3][note 1] and superseded the Keynesian Harrod–Domar model.
Mathematically, the Solow–Swan model is a nonlinear system consisting of a single ordinary differential equation that models the evolution of the per capita stock of capital. Due to its particularly attractive mathematical characteristics, Solow–Swan proved to be a convenient starting point for various extensions. For instance, in 1965, David Cass and Tjalling Koopmans integrated Frank Ramsey's analysis of consumer optimization, thereby endogenizing the saving rate, to create what is now known as the Ramsey–Cass–Koopmans model.
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Answer: the measure of human capital implicit in Mankiw, Romer and
Weil’s 1992 paper on ’A Contribution to the Empirics of Economic Growth’. It is
argued that MRW’s methodology fails to take account of cross-country di¤erences in
the costs of acquiring human capital, and so implies an excessive di¤erence in human
capital between advanced countries and developing countries, where acquiring human
capital is cheaper. The implication of this is that the equation which they successfully
…t to cross-country data is not, in fact, consistent with the Solow constant returns to
scale growth model, but implies increasing returns to scale and, on plausible factor
share assumptions, is in fact similar in its main properties to some endogenous growth
models, having constant returns to substitution..
Explanation: