Real World Solow Model
The model we’re building here (along with a few extra features) is used seriously in several contexts. One example is the World Bank, which uses their own simulation of the Solow Model to ask two main kinds of questions:
- Given a gross capital formation rate, $s_I$, how long will it take a country to get to a certain living standard?
- If a country wants to get to a certain living standard by a given date, what should the gross capital formation rate, $s_I$, be?
They include adjustments for human capital (which we talk about) and allow for countries to have “external balances”, meaning they borrow and lend with foreign countries and so the amount of capital built in the country may not be exactly equal to $s_I Y$ (which we don’t really talk about).
Their model is publicly available: