Knowledge to build the world, knowledge to destroy the world. K.S.

Pang (2013)

The Knowledge Economy

Chapter 8: Augmented Solow Model: The human capital accumulation

From Malthus Growth theory (Population control) to Solow Growth model
(Technological progress).

Then now from augmented Solow model (Human capital accumulation) to brain gain
and drain (Human capital flight).

8.1: Malthus Growth theory
Robert Malthus (1820) stated in his Principle of Political Economy, population
control Y = F (L) is the only way to improve the standard living of a society as he
believe that the food supply would lag behind population growth. The fixed supply of
land and limited agricultural resources will cause the widespread of starvation.

8.2: Solow Growth Model
Robert Solow (1987) establish his growth model, Y = ZF (K, N) is solely focused on
technological progress to long term betterment of standard of living by increase the
capital per ratio, y = zf (k). He also believes that, technological progress is occurring
indefinitely in future.

8.3: Augmented Solow Model
However, Romer (1986) and Lucas (1988) stated their Augmented Solow Growth
Model; this was established by treated human capital accumulation as an integral part
of the model, Y = ZF (K, AN) A is augmenting labour function.

Augmented Solow Model was specified by adding human capital accumulation inside
the traditional Solow Model. Therefore, this new Solow Model is trying to interpret
that human capital is a critical source and beneficial for long term economic growth
instead of the traditional Solow Model was solely focused on technological progress
and believe it is only way to improve standard of living in the long run.

The relationship between human capital and technology progress has been discussed
by another economist. Lucas (1988) was developed the endogenous growth model
Knowledge to build the world, knowledge to destroy the world. K.S. Pang (2013)

which is specified human capital as the most critical force to generate technology
progress in an economy. Human capital is responsible for labour productivity in the
world and overall output level in the world.

This is possible because human capital is creator of technological progress and makes
it be able to overcome diminishing returns to capital and other producible factors. And
the increase in human welfare occurred because we learned to do things more
efficiently. For example, we have created new methods, tools and ideas at a more
rapid pace. Because of this importance of technology, economists have developed
models to explain technological progress. These new models do not assume
technological progress as exogenous or determined outside the model. But it is
endogenous, or is treated as an integral part of the model. These new models are
referred as models of endogenous technological progress.

The planning and strategies should be adopted by developing nation to increase the
overall level of human capital accumulation

The less developed countries have not established a set of institutions favouring
equality and role of education for the masses and therefore they have been incapable
of investing in human capital stock necessary for technological growth.

Policy maker should treat human capital as a crucial resource for its future economic
growth and taken this into consideration while they are developing their national
policy and planning.

In order to push up the overall level of human capital accumulation, few matters must
bear in mind. Increase expenditure allocation for education; improve the efficiency of
labour market as to impede human capital flow out or brain drain and so on.

To sustain the economic development is ultimately due to human capital and
technological progress. Perhaps the most important things that we need to concern in
the growth theory are the determinants of technological progress.