Extending the Augmented Solow Growth Model to Explain Transitional Economies

by POLIMENI, John M., Raluca IORGULESCU POLIMENI and W. Scott TREES ,
Published in Romanian Journal of Economic Forecasting, volume 8 issue 1, 2007

Requires a PDF viewer such as Xpdf or Adobe Acrobat Reader
94Kb

Abstract

The development of countries in economic transition is often misunderstood. These countries are neither underdeveloped nor are they developed, they are somewhere in between. Therefore, macroeconomic models of transitional economies must include aspects of both underdeveloped and developed countries. Two such variables that should be included are institutions and learning-by-doing. Institutions that are established in the society are important because they can either hinder or accelerate economic growth. Just as important for transitional economies is learning-by-doing, as it takes time to learn how a new economic system works. This paper presents a macroeconomic model for transitional economies that extends the Augmented Solow Growth Model to incorporate learning-by-doing and institutions.

Keywords: Solow Growth Model, Transitional Economies, Economic Development
JEL Classification: O11, P20, E60