On the other hand the Harrod-Domar Growth model
stresses the importance of 'capital accumulation'.
Another model which reflected gap theory was the Harrod-Domar growth model
[Harrod (1948); Domar (1947)].
Harrod-Domar growth model
postulates that there is excess supply of labor in developing economies which reduces the productivity of capital.
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.
As an extension of the Harrod-Domar growth model
, the dual-gap theory has highlighted the motivation for the introduction of external debt in a growth model.
Many growth models, like Harrod-Domar growth model
, imply that high saving economies grow faster, and as in the Solow model, as one moves towards a steady state, saving will cause growth (Solow, 1956).
In other words, one may say that in Harrod-Domar Growth Model
, investment in fixed capital or capital-output ratio provides us with the demand and supply sides of the question, the solution of which may yield the required rate of growth.
Following Grobar and Gnanaselvam (1993), a simple Harrod-Domar growth model
is used to estimate the effect of the recent increase in defense spending on economic growth.
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.
The origin of empirical analysis between aid and growth could be traced back, as far as the Harrod-Domar growth model
. The Harrod-Domar model developed in the 1930s suggests savings provide the funds, which are borrowed for investment purposes.
The theoretical rationale was embodied in the well known Harrod-Domar growth model
, in which employment rises with increasing capital stock and the chief policy instrument is a fiscal strategy to raise domestic savings.