What does the 'Solow-Swan Growth Model' identify as the primary driver of sustained long-run per capita economic growth in the absence of technological progress?

💡 Solution & Explanation

The Solow-Swan neoclassical growth model demonstrates that in the absence of technological progress, capital accumulation eventually encounters diminishing marginal returns, leading the economy to a steady-state where per capita growth ceases. Consequently, sustained long-run increases in per capita output cannot be generated solely by saving and investing in physical capital; exogenous technological progress is required to shift the production function upward. The model highlights the steady-state capital-labor ratio where investment precisely offsets capital depreciation and population dilution. A related economic concept is endogenous growth theory, which seeks to explain technological progress from within the economic model rather than treating it as exogenous.