Growth Models for Developing Countries

Abstract

The original Harrod-Domar model was Keynesian, or if you like ‘ultra-Keynesian’ in conception. Its two basic propositions, the savings function and the Acceleration Principle, were offered as behavioural relationships. Harrod indeed used them to show that instability was endemic in the system and that it was a system subject to negative feedback. Deviations from the knife-edge of equilibrium were self-amplifying. Domar’s conclusions were the same, but with a different stress — on the ever-increasing rate of growth of investment that was needed if full employment demand was to be maintained. His starting point was the same pair of definitions (those giving the Multiplier and the rate of growth of capacity from given investment) but his conclusion was the requirements for full employment equilibrium. Yet even Domar’s full employment conditions required exogenous elements. Hans Singer’s² contribution which brings in population belongs to the Harrod-Domar genre. For his was the first application of the model to the developing countries, identifying the structural dynamic of per capita growth relationships, and offering a broad framework for policy.

This paper owes much to the assistance of Joan Wright (Wolfson College) especially in Section III.