Reflections About the Food–Energy–Water Nexus in a World …
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an economies strategy, for example in order to reduce CO 2 -emissions, and how this
idea translates into all the different layers of the economy especially in the FEW
nexus sectors.
To answer this question, we developed an economic model. In the following, we
will lay the foundation of the neoclassical model of economic growth.
3 Modelling Economic Growth and the FEW Nexus:
Theoretical Foundation
We will discuss the most important neoclassical growth model: the Solow Model
[72]. Solow’s article inspired researchers conducting economic investigations on
economic growth, which have a significant impact on economic policy around the
world [41].
3.1 Solow Model 2
The Solow Model was developed by Robert Solow and at the same time by Trevor
Swan in 1956 [1, 72, 75]. It is therefore also called the Solow–Swan model [41].
The Solow model is the starting point of the neoclassical growth theory and a further
development of the Keynesian economic growth model of the Harrod–Domar model
[19, 32, 72].
Solow and Swan assume that a fraction of the production output is not used for
consumption of the households but for investments. The annual investments in the
modernization of the economy increase the capital stock of the Solow economy to
even out the depreciation of the capital stock [41]. “The capital will accumulate as
its marginal productivity is higher than the rate of depreciation. But with increasing
levels of the capital stock, the difference melts away until the marginal productivity of
capital is equal to the rate of capital depreciation [41].” Thus, the capital accumulation
ends.
Labour is the second production factor of the Solow model. The technological
state of the country affects also the level of production and its long-term economic
growth perspective. Solow defines his model economy as an economic unit of all
production and consumption activities. In his basic model, Solow assumes that there
is no state and that all prices are constant [72]. Based on these assumptions made
by Solow, we will present the Solow growth model with and without technological
change.
2 This chapter is based on the detailed description of the Solow model by Lange and Acemoglu [1,
41]. Lange also presented a detailed analysis of the Keynesian and Marxian growth models [41].
11
an economies strategy, for example in order to reduce CO 2 -emissions, and how this
idea translates into all the different layers of the economy especially in the FEW
nexus sectors.
To answer this question, we developed an economic model. In the following, we
will lay the foundation of the neoclassical model of economic growth.
3 Modelling Economic Growth and the FEW Nexus:
Theoretical Foundation
We will discuss the most important neoclassical growth model: the Solow Model
[72]. Solow’s article inspired researchers conducting economic investigations on
economic growth, which have a significant impact on economic policy around the
world [41].
3.1 Solow Model 2
The Solow Model was developed by Robert Solow and at the same time by Trevor
Swan in 1956 [1, 72, 75]. It is therefore also called the Solow–Swan model [41].
The Solow model is the starting point of the neoclassical growth theory and a further
development of the Keynesian economic growth model of the Harrod–Domar model
[19, 32, 72].
Solow and Swan assume that a fraction of the production output is not used for
consumption of the households but for investments. The annual investments in the
modernization of the economy increase the capital stock of the Solow economy to
even out the depreciation of the capital stock [41]. “The capital will accumulate as
its marginal productivity is higher than the rate of depreciation. But with increasing
levels of the capital stock, the difference melts away until the marginal productivity of
capital is equal to the rate of capital depreciation [41].” Thus, the capital accumulation
ends.
Labour is the second production factor of the Solow model. The technological
state of the country affects also the level of production and its long-term economic
growth perspective. Solow defines his model economy as an economic unit of all
production and consumption activities. In his basic model, Solow assumes that there
is no state and that all prices are constant [72]. Based on these assumptions made
by Solow, we will present the Solow growth model with and without technological
change.
2 This chapter is based on the detailed description of the Solow model by Lange and Acemoglu [1,
41]. Lange also presented a detailed analysis of the Keynesian and Marxian growth models [41].