In theory, differences in output across economies and over time might

In theory, differences in output across economies and over time might be the result of differences in either capital input, labor input, or productivity.

The evidence points clearly to productivity as a more likely and powerful source of growth differences. Which aspects of the Solow growth model help to explain why the inputs of capital and labor contribute little to growth of output, relative to productivity?

ANSWER

Diminishing marginal product undermines the impact on output of increases in either capital or labor. As long as the labor input grows, and saving is sufficient to compensate for depreciation and capital dilution, output can grow at the same rate as the labor input. Faster growth is possible during recovery from an event that has reduced the capital-labor ratio, or in response to an increase in the saving rate. But such growth episodes end as the capital-labor ratio approaches a steady state. A growing stock of capital has a diminishing effect on output, on the one hand, and a linearly-increasing reliance on saving from output on the other. Productivity is subject neither to diminishing marginal returns nor to depreciation & dilution, so nothing impedes the connection from productivity growth to output growth.