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Introduction to Modern Economic Growth original steady state of the differential equation applies and together with this the leftwards arrows become effective Thus from t00 onwards, the economy gradually returns back to its original balanced growth equilibrium, k∗ We will see that similar comparative dynamics can be carried out in the neoclassical growth model as well, but the response of the economy to some of these changes will be more complex 2.8 Taking Stock What have we learned from the Solow model? At some level, a lot We now have a simple and tractable framework, which allows us to discuss capital accumulation and the implications of technological progress As we will see in the next chapter, this framework is already quite useful in helping us think about the data However, at some other level, we have learned relatively little The questions that Chapter posed are related to why some countries are rich while others are poor, to why some countries grow while others stagnate, and to why the world economy embarked upon the process of steady growth over the past few centuries The Solow model shows us that if there is no technological progress, and as long as we are not in the AK world, ruled out by Assumption 2, there will be no sustained growth In this case, we can talk about cross-country output differences, but not about growth of countries or growth of the world economy The Solow model does generate per capita output growth, but only by introducing exogenous technological progress But in this case, everything is being driven by technological progress, and technological progress itself is exogenous, just a blackbox, outside the model and outside the influence of economic incentives If technological progress is “where it’s at”, then we have to study and understand which factors generate technological progress, what makes some firms and societies invent better technologies, and what induces firms and societies to adopt and use these superior technologies Even on the question of capital accumulation, the Solow model is not entirely satisfactory The rate of capital accumulation is determined by the saving rate, the depreciation rate and the rate of population growth All of these are taken as exogenous 94