Policy memo: The neoclassical growth model is one of the economic models that explain the long-run economic growth by focusing on capital accumulation, technological advancement, and supply of labor. The model was developed by Robert Solow and Trevor Swan in 1956. According to this model addition of capital in an economy can have a very little effect on economic output if there is no technological change. Addition of capital in the fixed supply of labor is subject to diminishing returns.
By the law of diminishing return, as more capital is added to the constant supply of labor, the additional product produced as a result of the addition of capital reduces instead of increasing in proportion to added capital. The first step towards lifting Madagascar out of poverty is through developing its technological capability.