The Neoclassical Growth Model

 

The causal structure for the  Solow-Swan or Cobb-Douglas production functions take population growth (N) and Technology (TECH) as exogenous to the employment (L), production (Q) and Capital formation (K) processes. The causal model predicts that if either Population Growth or Technology change reach an equilibrium that the system will reach a steady state. The assumption is that Technological change will never cease. The only feedback loop in the model is between Capital (K) and Production (Q).

The Neoclassical Growth model can be derived from the Kaya Identity (true by definition).

Adding TECH and Capital Stock (K) to the model is simple:

However, using loop-reduction theorems, K can be reduced out of the system:

which is convenient because Capital stock is not available in the World Development Indicators (WDI). The theoretical interpretation is that, at equilibrium, the Capital Stock (K) modifies Labor (L) and TECH productivity (some output must be set aside to support production). Markets for labor (L) and production (Q) can also be aded to the model

and reduced out if needed.