Another problem to consider with the neoclassical growth model is the idea that investment and various other factors will affect the rate of growth of per capita output for as long as long as it takes for the economy to adjust from one steady-state growth path to another. In actuality, investment and other factors could influence growth in the long run because there are circumstances in which they could be considered the equivalent to an improvement in technology. For instance, education and external trade will lift the level of output that can be produced from given inputs through increased efficiency. Thus, levels of income per capita (or standard of living) will rise as a result because this is equivalent to an improvement in technology. As we discovered earlier, low levels of literacy, characteristic of unskilled workers, has hampered the growth in much of the developing world.
In conclusion, the neoclassical growth model is of some use in helping economists and policy makers develop effective policies to reduce poverty. It is extremely thorough and complete in its manner of analyzing the plight of the poor through the frameworks of economic growth. Technology is realized in this model to be the key factor in sustaining long-term economic growth. The idea of investing in physical and human capital implied by the neoclassical growth model has powerful implications that could indirectly lead economists and policymakers to suggest social policies that would promote health, education and other safety nets to help the poor. The underlying argument against this model is in the fact that many factors that may indeed influence economic growth and world poverty simply is not quantifiable, such as legal structures, the political environment and the social infrastructure. These are very relevant forces in the real world with lasting impacts on economies, yet we are unable to analyze these effects through the lens of this model. Nonetheless, the neoclassical growth model does steer us in the right direction in thinking about the long run effects various policies have on the welfare of an economy by looking at the situation in terms of economic growth and technological progress.
Bibliography:
Bigsten, Arne and Levin, Jorgen. 2000. "Growth, Income Distribution, and Poverty: A Review." Working Papers in Economics 32, Goteborg University, Department of Economics.
Besley, Timothy and Robin Burgess. 2003. "Halving Global Poverty." Journal of Economic Perspectives. Summer, 17:3, pp.3-22.
Blanchard, Olivier. 2003. Macroeconomics-3rd Ed. New Jersey: Prentice Hall, Ch. 11-13.
World Bank, 2001. "Chapter 3. Growth, Inequality and Poverty, in World Development Report 2000/2001: Attacking Poverty, New York: Oxford University Press, pp.45-59.
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