Question

Contrast the H-D model with the Solow model, and explain the impact of population growth on income per head and economic development. Relate your answer to a particular country of your own choosing.

Answer 1

H-D model explains that an economy's growth rate in terms of the level of saving and productivity of capital. The Solow model states that in the long run an economy experiences growth rate through capital accumulation, labour, population growth and increase in productivity.

An increase in population in an economy will increase the aggregate output but may result in a fall in per capita therefore reducing the living standards of people. If we look at an economy like India where the population level is highly increasing over the past decades and the supply of labour is very high in the economy which made the India's aggregate output level to rise from 270.5 billion dollars to 2.6 trillion dollars in 2018. But at the same time the steady level of per capita output and living standards of people has not increased accordingly compared to GDP. For a larger economy like India with a population of 1.32 billion it becomes highly difficult to manage its per capita output. To this economy the Solow model supports as India has shown a significance growth in capital, labour, population and increase in productivity in the economy. On the other hand the H-D model also supports to some extent as India has shown an increase in productivity of capital and increase in the level of saving which led to the economic growth but there are other factors which come into picture like political stability, legal system in economy, security of property rights, higher level of technology compared to US, Japan etc.