Model Exercise: Robert Solow and Total Factor Productivity Growth
Download Exercise: "Robert Solow and TFP Growth"
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SUMMARY
Robert Solow, a Nobel prize-winning economist, studied the determinants of economic growth. His most influential contribution was the idea that there are two separate determinants of growth. One is growth in the supply of factor inputs – labor and capital. When a country’s factor endowments grow, so will the quantities it is able to produce. The second determinant is technological progress, which increases the productivity of factor inputs. Growth in total factor productivity (TFP) allows the same quantity of all factor inputs to generate more output.
In this model exercise, you will explore the effects of TFP growth in one sector of the U.S. economy, manufacturing, and identify both its direct effects on the MFG sector of the economy and selected indirect, or general equilibrium, effects on the rest of the economy.