🗓️ Session 4: Classical and Neoclassical growth models

Author

Affiliation

Claudius Gräbner-Radkowitsch

EUF and JKU

Abstract

This session examines how economists theorize the drivers of economic growth and their implications for development. We begin with classical perspectives from Smith, Ricardo, and Marx, who focused on systemic dynamics and the limits or contradictions of capitalist growth. We then explore the foundational Solow-Swan model, which introduced factor substitution and diminishing returns to explain stable growth and predict convergence between rich and poor countries.

Through growth accounting, we will see how technological change emerges as the primary driver of long-term growth, leading to endogenous growth theories that attempt to explain innovation and human capital accumulation. You will engage with empirical evidence on convergence and learn to critically evaluate what growth models reveal about development processes - and what important aspects they obscure, including distributional conflicts, institutional factors, and environmental constraints.

🎥 Lecture videos

The four videos are shown below. Alternatively, you can access them via this playlist on Youtube.

🖥️ Lecture Slides

Click here to download the slides.

🎯 Exercise

• More information on the convergence exercise provided here
• The Penn World Tables
• Possible solution

📚 Mandatory Reading

• The Overview of World Bank (2024) (Download PDF)
  • The Overview alone is enough; the rest of the report is there if a chapter catches your interest

🏆 Further Readings

• Solow (1956) and Swan (1956)
  • The original papers introducing the fundamental growth model
• Solow (1957)
  • The original article on Solow’s empirical growth accounting
• Acemoglu (2017)
  • While many expositios are technically very advanced, they give a good overview about the current state of the art of the mainstream approach; chapters 2 and 3 cover the Solow-Swan model in a lot of detail
• World Bank (2026)
  • The most recent World Development Report, on what artificial intelligence as a general-purpose technology means for low- and middle-income countries

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If you have questions or problems, please post them in the Moodle forum.

References

Acemoglu, D. (2017) Introduction to Modern Economic Growth, Princeton; New York: Princeton University Press.

Solow, R. M. (1956) “A Contribution to the Theory of Economic Growth,” The Quarterly Journal of Economics 70(1): 65, doi:10.2307/1884513.

Solow, R. M. (1957) “Technical Change and the Aggregate Production Function,” The Review of Economics and Statistics 39(3): 312, doi:10.2307/1926047.

Swan, T. W. (1956) “Economic Growth and Capital Accumulation,” Economic Record 32(2): 334–361, doi:10.1111/j.1475-4932.1956.tb00434.x.

World Bank (2024) World Development Report 2024: The Middle-Income Trap, Washington, DC: World Bank, available at https://doi.org/10.1596/978-1-4648-2078-6.

World Bank (2026) World Development Report 2026: The Promise of Artificial Intelligence, Washington, DC: World Bank, doi:10.1596/978-1-4648-2331-2.