Joan Robinson's growth model
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Joan Robinson's Growth Model is a simple model of economic growth, reflecting the working of a pure capitalist economy, expounded by Joan Robinson in her 1956 book The Accumulation of Capital.[1] However, The Accumulation of Capital was a terse book. In a later book, Essays in the theory of Economic Growth,[2][3] she tried to lower the degree of abstraction. Robinson presented her growth model in verbal terms. A mathematical formalization was later provided by Kenneth K. Kurihara.
Assumptions:[4]
- There is a laissez-faire closed economy.
- The factors of production are capital and labour only.
- There is neutral technical progress.
- There are only two classes: workers and capitalists, among whom the national income is distributed.
- Workers save nothing and spend their wage income on consumption.
- Capitalists consume nothing, but save and invest their entire income for capital formation.
- There is no change in the price level.
- Saving is a function of profit.
The model
The entrepreneurs’ total profit and the workers’ total wage bill constitute the net national income. It can be mathematically expressed as
where Y is the net national income, w is the money wage rate, N is the number of workers employed, K is the amount of capital utilized, p is the average price of output as well as of capital and π is the gross profit rate.The above equation indicates that the profit rate is a functional of labour productivity (Y/N) and real wage rate (w/p)and capital/labor ratio
Net investment
where is gross investment, and is the rate of capital depreciation.
Investment equals savings. Since workers consume all of their wage income and capitalists save/invest all of their profits, , then the rate of capital accumulation equals the net rate of profit:
