Technical progress and endogenous growth

Technology is the only source of sustained per-capita growth in the Solow model, yet Solow treats it as manna from heaven. Technical progress can be disembodied (better organisation, knowledge that raises output without new machines) or embodied (built into new machines, so progress arrives with investment). Endogenous growth theory brings technology inside the model: knowledge spills over between firms, human capital accumulates, and research effort responds to incentives. Worked example: in the simplest AK model, output Y = A.K with A = 0.3 and saving rate 0.2, growth is s.A - delta = 0.2 x 0.3 - 0.05 = 0.01, i.e. 1% a year sustained, because capital does not run into diminishing returns.