The Chilean Economic Model Experience: the Weakness of the Solow Model
More details
Hide details
University of La Serena, Chile
University of Lodz, Poland
Submission date: 2022-10-18
Final revision date: 2023-05-25
Acceptance date: 2023-05-26
Publication date: 2023-07-29
Corresponding author
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

Barossi-Filho, M., Goncalves, R., Martin, E. (2005). The empirics of the Solow growth model: Long-term evidence. Journal of applied evidence. Vol 3, N°001, pp31-50.
Caselli, F., Esquivel, G., 1Lefort, G. (1996). Reopening the convergence debate: A new look of cross countries growth empirics. Working paper N°3. Central Bank of Chile.
Duffy, J., Papageorgiu, C. (2000).A cross country empirical investigation of the aggregate production function specification. Journal of Economic Growth, 5 pp 87-120.
Durhauf, S., Kourtellos, A., Minkin, A. (2001). The local Solow Growth Model.European Economic Review 45 pp 928-940.
Edwards, S. (2019). The reality of inequality and its Perception: Chile’s paradox explained. Stigler Center. University of Chicago.
Ffrench-Davis, R. (2019). La inversion productiva en el Desarrollo económico de Chile: Evolución y Desafíos. Revista de la CEPAL N° 217, pp 1-27.
Fuentes, J., Schmidt-Hebel, K., Soto, S. (2021). Fiscal Policy Rule and public investment in Chile, IDB Working paper Series, No. 1189, pp 1-80.
Hendricks, L. (2023) Advanced Macroeconomics Theory. Economics Department University of North Caroline.
Huawei. (2017).Global connectivity index.
Income distribution data review Chile. (2012).
Mankiw, G., Romer, D., Weil, D. (1992). A contribution to the empirics of economic growth. The Quarterly Journal of Economics, pp 1-34.
Magnani, R. (2005). The Solow Growth Model Revisited.Introducing Keynesdian Involuntary Unemployment. CEPN. Université de Paris.
Nkolu, C., Edeme, R., Chukuruma, Q. (2018). Testing the validity of the Solow model: Empirical evidence from cross country panel data. American Economic & Social Review Vol 3, N1, pp 1-5.
PNUD. (2017) Orígenes, cambios y desafíos dela brecha social en
Selaive, J. (2018). How Chile is doing in terms of Productivity. Economic analysis. BBV.
Solow, R. (1994). Perspective on Growth theory. Journal of economic perspective. Vol 8, N°1, pp 45-54.
Schiliro, D. (2017). A Glance at Solow’s Growth Theory. pp 1-22.
Wulf, E. (2020). Economy, Energy and Environment: Analysis from the microeconomics perspective. The Mexican Journal of Economics and Finance. V(15) Issue 4. Special Energy & Growth, October. December p 1-25. DOI :10.21919/remef.
Wulf, E. (2021). The social implosion of the Chilean economy. Editorial Académica Española. España p1-124 (ISBN 978-3-8417-6102-6).
Journals System - logo
Scroll to top