The Relative Role of Public and Private Health Expenditure for Economic Growth: A Solow Growth Model Expansion

Determining the factors affecting economic growth for countries is of significant interest to the macroeconomist. In his classic article from 1956, Robert Solow proposed the model that has since become the modern standard for economic development models. His growth model, the Solow growth model, assumes a neoclassical production function with diminishing returns to capital, i.e. total income Y depends on physical capital K and effective labor AL, where effective labor is defined as the product of technology A and labor L. Solow proposed two exogenous factors, saving rates and population growth, to explain varying economic growth rates across countries. Solow argued that higher saving rates lead to capital accumulation, leading to economic growth, while population growth leads to lower economic growth as it means that capital is more spread out among labor.