The Chilean Economic Model Experience: the Weakness of the Solow Model
University of La Serena, Chile
University of Lodz, Poland
Data nadesłania: 18-10-2022
Data ostatniej rewizji: 25-05-2023
Data akceptacji: 26-05-2023
Data publikacji: 29-07-2023
Autor do korespondencji
Ryszard Piasecki   

University of Lodz, Poland
JoMS 2023;51(2):43–61
This paper is about to review some key weakness of the Solow model, when it is applied to less developed economics.

Material and methods:
The paper takes the economic data performance for the Chilean economy from1990-2020, focusing in GDP growth, as well as the investment trend given the positive correlation between these variables. A theoretical background of the Solow Model is analyzed in more details, as well as its assumptions , especially those ones : a. Which assumes that production decisions are self-made by the operation efficiency requirement, b. Which make of the supply of labor high elasticity, linked to population growth , a key variable to ensure that given technological progress, output may growth as expected in the C-D production function. c. The role of technological progress in productivity growth given that in a less developed economy, productivity gains, would hardly come up without government support by setting rules and policies dealing with property rights, efficient regulation, tax incentives, and stable economic policies.

a. The implication of lacking a management variable, meant that the economy would be on its own, far from being capable of coping with all the requirements to sustain economic growth path. b. The Solow Model standard formulation, had important limitations for a less developed economy c. Investment pattern follow a two tier format: „investment creation” and “investment deviation”.

The evaluation about the Chilean economy outcome up to 2019, was based on the advantages and disadvantages of the neo liberal model principles, without taking into consideration the ill designed microeconomic setting provided by the Solow model to sustain the path of key variables (Economic growth), as an input for public policies design and its right timing and consistency

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