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CHAPTER The Solow Model and the Data In this chapter, we will see how the Solow model or its simple extensions can be used to interpret both economic growth over time and cross-country output differences Our focus is on proximate causes of economic growth, that is, the factors such as investment or capital accumulation highlighted by the basic Solow model, as well as technology and human capital differences What lies underneath these proximate causes is the topic of the next chapter There are multiple ways of using the basic Solow model to look at the data Here we start with the growth accounting framework, which is most commonly applied for decomposing the sources of growth over time After briefly discussing the theory of growth accounting and some of its uses, we turn to applications of the Solow model to cross-country output differences In this context, we introduce the augmented Solow model with human capital, and show how various different regression-based approaches can be motivated from this framework We will then see how the growth accounting framework can be modified to a “development accounting framework” to form another bridge between the Solow model and the data A constant theme that emerges from many of these approaches concerns the importance of productivity differences over time and across countries The chapter ends with a brief discussion of various other approaches to estimating cross-country productivity differences 3.1 Growth Accounting As discussed in the previous chapter, at the center of the Solow model is the aggregate production function, (2.1), which we rewrite here in its general form: Y (t) = F [K (t) , L (t) , A (t)] Another major contribution of Bob Solow to the study of economic growth was the observation that this production function, combined with competitive factor 103