Learning from ‘Learning by Doing’: Lessons for Economic Growth

by Robert Solow

This book by a Nobel laureate in economics begins with a brief exposition of Kenneth J. Arrow's classic paper "The Economic Implications of Learning by Doing" (1962). It shows how Arrow's idea fits into the modern theory of economic growth, and uses it as a springboard for a critical consideration of spectacular recent developments that have made growth theory a dynamic topic today. The author then develops a new theory that combines learning by doing (identifying it with the concept of "continuous improvement") with a separate process of discrete "innovations." Learning by doing leads to a fairly smooth reduction in labor required per unit of output, tied to the rate of gross investment in new capital equipment. Innovations arrive at random; when one of them happens, the labor requirement takes a jump downward. This new model, simple as it is, does not lend itself to self-contained solution. The author accordingly presents the results of a series of computer simulations that exhibit the variety of paths the new model economy can follow, showing, among other things, that early good luck can have a persistent effect. The book concludes with some general reflections on policies for economic growth, drawn not from any one modeling exercise but from general experience with a variety of growth models. Of the four chapters of this book, the first two were presented as the Kenneth J. Arrow Lectures at Stanford University in 1993. The computer simulations were specially done for inclusion in this book. The final chapter on policies for economic growth was first presented as the Ernest Sturc Lecture at the Johns Hopkins School of Advanced International Studies in Washington in 1991.

Genres: Economics

104 pages, Hardcover

First published April 1, 1997

About the author

Robert Merton Solow was an American economist who received the Nobel Memorial Prize in Economic Sciences for the development of a mathematical model for economic growth. He based his model on the earlier Harrod-Domar model but incorporated a significant difference in his own model. This difference lay in the fact that Solow assumed that full employment could be achieved by adjusting the wages given to the workforce. His theory totally contradicted the earlier theory that the economy was facing a great crisis. He soon followed with another theory that labor and capital were not the only two factors required for economic growth as was believed by economists till then. He suggested that a third factor has to be considered if the rate growth is to be calculated in real terms. This factor is called the ‘Solow residual’ which can be attributed to the technical changes that are required for healthy economic growth. He also developed a new model which made new capital more important than old capital which is based on the technology prevalent at the time. With new capital more changes could be brought about in the technological field. His articles on economic growth brought about a huge change in the perspectives that economist had till then about the realities of economic growth.

Reviews

[Kalle Wescott · Rating 5 out of 5]

Brilliant, insightful book!

"Learning by doing" is a category of gained skills and experience from performing tasks and getting incrementally better at doing those tasks each time we do them.

Solow reviews the original and seminal Kenneth J. Arrow's paper "The Economic Implications of Learning by Doing", and updates it with his own theories, which combine learning by doing with other discrete innovations.