Dynamic Economic Analysis
5000 words
Essay question
In the Solow-Swan growth model and the Romer R&D growth model, how are equilibrium points addressed?
Essay structure
[Introduction]
[Neoclassical model] Discuss how differential equations and phase diagrams were used by Robert Solow to formalize his theory and how steady states are addressed. Elaborate on the concepts of steady state and convergence in this context.
[Alternative model] An examination of possible limitations and refinements of Solow’s
contribution, including examples of alternative dynamic models of economic growth. Discuss how differential equations and phase diagrams were used by Paul Romer to formalize his theory and how steady states are addressed. Elaborate on the concepts of steady state and convergence.
[Simulation] An application of both models (Solow and Romer) to an economy of your choice. Collect reasonable values for all constant parameters – e.g. labour force growth rate, saving rates etc, and solve models analytically
[Methodology] critically analyse and compare advantages and disadvantages of dynamic modelling in continuous and discrete time, relative to static modelling. And a comparison of the Solow model and the Romer model.
[Conclusion] Briefly outline strengths and weaknesses of both models (Solow and Romer) then summarise essay.
