Harrod-Domar Growth Model

Harrod-Domar Growth Model

A model for what creates economic growth. According to Harrod-Domar, growth equals a country's savings rate multiplied by the marginal product of capital less depreciation. Essentially, high savings generates growth because savings are eventually invested. The Harrod-Domar model has been used to explain lack of development in some parts of the world: because there is little capital to be saved, there is less capital to invest. Critics, however, contend that the model confuses growth and development (which are distinct) and that it can encourage reckless borrowing to spur development.
References in periodicals archive ?
Economic mechanism by which more investment leads to more growth can be described in terms of the Harrod-Domar growth model, today often referred to as the AK model based on a linear production function.
While the Harrod-Domar growth model perceived the capital-output ratio, v, as a constant in the warranted growth expression, s/v, the dual theory considers it as a variable.