Economic growth and economic development 228

This part of the book is a preparation for what is going to come next In some sense, it can be viewed as the “preliminaries” for the rest of the book Our ultimate purpose is to enrich the basic Solow model by introducing well-defined consumer preferences and consumer optimization, and in the process, clarify the relationship between growth theory and general equilibrium theory This will enable us to open the blackbox of savings and capital accumulation, turning these decisions into forward-looking investment decisions It will also enable us to make welfare statements about whether the rate of growth of an economy is too slow, too fast or just right from a welfare-maximizing (Pareto optimality) viewpoint This will then open the way for us to study technology as another forward-looking investment by firms, researchers and individuals However, much of this will have to wait for Parts and of the book, where we will study these models in detail In the next three chapters, we will instead the work necessary to appreciate what is to come then The next chapter will set up the problem and make the relationship between models of economic growth and general equilibrium theory more explicit It will also highlight some of the assumptions implicit in the growth models The two subsequent chapters develop the mathematical tools for dynamic optimization in discrete and continuous time To avoid making these chapters purely about mathematics, we will use a variety of economic models of some relevance to growth theory as examples and also include the analysis of the equilibrium and optimal growth