ABSTRACT
The formalization of economic growth theory was started by the neoclassical model set up by Solow (1956), where the accumulation of capital and labour eventually ends in the stationary state as the saving rate can no longer sustain the expansion of the economy. Given the hypothesis of constant returns to scale, the growth accounting of the income share accruing to each factor (the output elasticity of the input multiplied by its accumulation) adds up to one. Since the growth accounting of real economies exhibits a “residual” which is neither reflected by the contribution of capital nor of labour input, this further output formation is ascribed to efficiency in the combination of factors of production, namely total factor productivity (hereafter, TFP). The Solovian view of a smooth process of GDP increases has the drawback of considering technical progress, which is the most crucial variable ruling the growth path, as an exogenous variable.
