Technical progress, institutional development and growth in the aggregate

The Solow (1956) model is a central piece of contemporary growth theory. From an analytical perspective, it provides a simple benchmark against which we can assess more elaborate models. From an empirical perspective, it does surprisingly well (Mankiw et al. 1992). Taking a scientific perspective, which puts together the analytical and the empirical, the model captures some regularities and the relations between them as first approximations. The Solow model is often interpreted as assuming exogenous technical progress. A more proper interpretation is that it assumes an exogenous and constant rate of increase in multifactor productivity. In any case, it does not consider explicitly the role of institutions in long-run economic growth. My objective is to expound an aggregate model of technical progress, institutional development, and growth, which will provide us with a benchmark against which we will be able to assess, not only theoretical models of technological progress and growth, but also theoretical models of institutions and growth. I expect to derive by other means three properties of Corriveau’s (2016, J Evol Econ 26: 933) model: first, that better institutions lead to a higher level of income per capita; second, that institutions do not cause growth by themselves; third, and finally, that institutional change does. My objective is also to discuss the historical evidence on institutions and growth and to consider, in particular, the thesis of North and Thomas (1973), Clark (2007) and Ogilvie and Carus (2014). I intend to show through that discussion that the assumptions of the model are realistic as first approximations.