Testing Solow's Implications on the Effective Development Policy
- Testing Solow's Implications on the Effective Development Policy
- Jeong, Hyeok
- Capital investment; Diminishing return; TFP; Human capital; Development policy; Development effectiveness
- Issue Date
- Series/Report no.
- KDI Working Paper Series;WP13-07
- The core of the neoclassical growth theory is the capital investment. Solow
proposed that the diminishing return is key to such growth process in establish-
ing the stability of the equilibrium growth path. This key postulation has critical
implications on the sustainable and e¤ective development policy, suggesting the im-
portance of productivity and human capital in both steady-state and capital-driven
transitional growth. This paper suggests a novel way to test the diminishing return
assumption and con rmed its strong presence using the Penn World Tables version
8.0 data, hence validates Solow s implications on e¤ective development policies.
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