# Solow Growth Model

*Macro & Economy — Finicade finance glossary*

The Solow model explains long-run growth through capital, labour and technology, and finds that only technological progress raises growth permanently.

The Solow model explains long-run growth through capital, labour and technology, and its central result is uncomfortable for policy: because capital has diminishing returns, saving and investing more raises the level of income but not its permanent growth rate. Only technological progress does that, and the model treats it as exogenous — a gap that motivated the endogenous growth theories that followed.

**Also known as:** Solow model, neoclassical growth model, growth accounting

**Related terms:** [Diminishing Returns](https://finicade.com/glossary/diminishing-returns), [Productivity](https://finicade.com/glossary/productivity), [GDP (Gross Domestic Product)](https://finicade.com/glossary/gdp), [Aggregate Supply](https://finicade.com/glossary/aggregate-supply), [Economies of Scale](https://finicade.com/glossary/economies-of-scale)

**Taught in:** Macro & Markets — Technological Progress & Growth

Source: https://finicade.com/glossary/solow-growth-model