![]() With his contribution, Solow founded the neoclassical growth theory: growth models á la Solow describe the evolution over time of the studied variables and they can be formalized in continuous as well as discrete time. He discussed how the long run behavior of physical capital is influenced by the structure of production functions (technologies) and the income distribution. In his essay A Contribution to the Theory of Economic Growth, the Nobel Prize-winning rejected the so called Harrod-Domar assumption (see ) of fixed proportions between production's inputs and supposed the possibility of substitution between capital and labor. ![]() What explains changes on the gross domestic product (GDP) of a country? Can investments increase it? Why is GDP stagnant in non-developed or developing economies? Neoclassical growth theory provides a theoretical framework to explain the long run behavior of an economy by considering three driving forces: capital, labor and technology.
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