The technological progress of the Solow model has a new variable of labor efficiency, assumes that technological progress is labor augmenting, and increases labor efficiency at an exogenous rate (Lerner, 1952). In addition, the technological progress of the Solow model starts with a stable returns to scale production function Y = f (K, L).
The strategic and financial lessons emphasized are crucial for students to understand, especially in the new globalization era. Strategic management will become increasingly important in the education of business executives in the 21st century because of its dynamic competitive landscape due to increasing globalization and rapid technological changes.
The Solow model predicts that global differences in steady position output per person occur owing to international differences in technology for a constant capital output ratio. In the Solow model (Solow, 1956), the production technology is constant while income per capita is invariable in the steady state.
The Solow model articulates that the stable state growth occurs owing to technological change or progress. The model can be applied to a cross-country context where there is a stable state difference in output per effective person due to technological difference.