Economic Growth and Capital Accumulation

 2. Economic Growth and Capital
To better understand capital
accumulation and technological changes
affecting the economy, it is necessary to
elaborate neoclassical model of
economic growth. This model was
developed by Robert Solow, who in
1987 received the Nobel Prize for this
model and other contributions to the
theory of economic growth. 

neoclassical model of economic growth
describes an economy in which a single
homogeneous output produced two
inputs: capital and labor. Here is the
growth of labor out of the reach of
economics and is not affected by the
economic determinants (Ristic et al.
2006). In addition, the assumption is that
the economy is total competition and full
employment, so that it can analyze the
growth of potential output. In the
analysis of economic growth, economists
emphasize the need to increase capital
equipment, which means that the amount
of capital per worker is constantly
increasing. Examples include the
increase in capital equipment
multiplication of agricultural machinery
and irrigation systems in agricultural
production, rapid railways, highways in
transportation, computer and
communication systems in banking, etc.

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