The growth model

Abstract

This chapter introduces the growth model. It proceeds to the examination of the tenets of this theory, such as the catching-up growth phenomenon, the steady growth path phenomenon and the cutting edge growth path phenomenon. Further, this chapter introduces artificial intelligence (AI) by presenting two scenarios that seek to explain how AI could affect the growth model as we understand it. In the era of artificial intelligence, where a considerable part of the production line will be automated, the assumptions of the Solow growth theory are affected. In our assessment, there exist two scenarios that could play out. In an environment characterized by intense automation, the first scenario could see a situation where classifications are left as they are in this theory. This scenario will see the robotic infrastructure or automation programmes replace part of or all labour. This will result in a situation where the theory is revised to indicate that the amount that each robotic infrastructure or a computer programme produces in the economy will be dependent on allocated capital per robot (and/or partially labour). The second scenario could include a condition where the robotic infrastructure or computer programme is treated as part of the capital. In these conditions, the straight-line curve that illustrates the depreciation curve will be steeper. In this scenario, since total/ partial labour will be out of work, it will not be in a position to save, pay taxes or demand goods that will massively be produced by the automated manufacturing factories. Since there are no excess funds to preserve, investments to the new capital, infrastructure will shrink. The levels of investments will be lower than the depreciation required even to maintain the existing infrastructure. In this regard, the expectation is that no new capital infrastructure will be undertaken. Thus, the output per robotic support will eventually decline. If these scenarios play themselves out, the long-run steady state is replaced by the long-run economic crisis.