Solow Model Analysis: Effects of Savings Rate on Growth and Production

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[...] We can observe a positive correlation between the two variables. In other words, the higher the savings rate, the higher the GDP growth rate is also. This result confirms the predictions of the Solow model, according to which an increase in the savings rate leads, in the short term, to an acceleration of growth. However, we should note that the R2 is relatively low: other explanatory factors therefore seem to be necessary to specify the links between savings rate and growth rate. [...]

[...] From the hypothesis that the relative savings rate is a determinant of the relative level of GDP, we can observe that the correlation is positive, but relatively weak. ,and the Solow model predicts the following relationship: According to the regression line presented on this graph, the estimate is as follows: In other words, the Solow model's prediction is verified in terms of the sign of the relationship. There is indeed a positive correlation between the log of relative GDP and log of relative savings rates. [...]

[...] In the Solow model, the savings rate has no influence on the long-term growth rate. In fact, this depends solely on exogenous factors such as population growth rate or technological progress. However, an increase in the savings rate leads, in the short term, to a stimulation of short-term growth. The following graph illustrates the effects of a change in the savings rate: from à with > : Graph 1 Solow Model with two savings rates Note the savings rate the capital per head and the production per head. [...]