linear stages of growth and the harrod domar growth
TRANSCRIPT
LINEAR STAGES OF GROWTH AND THE HARROD-DOMAR GROWTH
MODEL
LINEAR STAGES OF GROWTH
What are the five different stages of growth?
i. Traditional society
ii. Pre-conditions for take-off
iii. Take-off
iv. The drive to maturity
v. The age of mass consumption
How does a country move through these stages? Capital accumulation
LINEAR STAGES OF GROWTH
What is the historical justifications for this model?The Marshall PlanPath of developed nations
0
10
20
30
40
50
60
70
80
90
Perc
ent
Agriculture Labor Share
HARROD-DOMAR GROWTH MODEL
๐บ๐ท๐
๐๐๐ก๐ ๐๐ฃ๐๐๐๐ ๐๐๐ก๐
๐๐๐๐ ๐ ๐ ๐๐ฃ๐๐๐๐ ๐๐๐ก๐
๐๐๐๐๐๐๐๐๐ก๐๐๐๐๐๐ก๐
๐๐๐๐๐ก๐๐ ๐ ๐ก๐๐๐What is the definition of net savings? Total absolute amount savedโฆ Savings minus depreciation
HARROD-DOMAR GROWTH MODEL
Total production in the country is equal to:
What is another name for the Harrod-Domar growth model? AK model (where
is usually )๐๐๐๐๐ก๐๐๐๐ข๐ก๐๐ข๐ก ๐๐๐ก๐๐
HARROD-DOMAR GROWTH MODEL
Total production in the country is equal to:
Why is labor not explicitly modeled? It is assumed to
not be a constraining factor.
๐๐๐๐๐ก๐๐๐๐ข๐ก๐๐ข๐ก ๐๐๐ก๐๐
HARROD-DOMAR GROWTH MODEL
Absolute change in GDP, , can then be expressed as:
Why this outcome? We are assuming
is constant.
HARROD-DOMAR GROWTH MODEL
We assume that
ยฟ๐ โ๐
ยฟ ๐ผยฟ โ๐พยฟ๐ โ๐What does this say? Growth is a
function of the savings rate and the inverse of the capital-output ratio
๐บ๐ท๐ h๐๐๐๐ค๐ก
HARROD-DOMAR GROWTH MODEL
Result:
If you want to develop, what do you have to do?Accumulate capital!
What factor which is always mentioned as key in an industrial revolution is not determined in the model?Technological change
HARROD-DOMAR GROWTH MODEL
Result:
What can be done if domestic savings is insufficient?
How does this relate back to the Marshall Plan?
HARROD-DOMAR GROWTH MODEL
Result:
If this was the only explainer for differences in GDP and growth, what would you expect differences in savings to look like?
HARROD-DOMAR GROWTH MODEL
Result:
โUnfortunately, the mechanisms of development embodied in the theory of stages of growth did not always work.โ
Why?
PROBLEMS: HARROD-DOMAR GROWTH MODEL
Show that
PROBLEMS: HARROD-DOMAR GROWTH MODEL
If , what savings rate is needed to obtain 10% GDP growth?
Where
TO THINK ABOUT: HARROD-DOMAR GROWTH MODEL
If the poor save more than the rich, how would policies that benefit the rich affect growth in the model looked at above?
Think about how we can formulate this into the modelโฆ.
๐ ๐๐ฃ๐๐๐๐ ๐๐๐ก๐๐๐ h๐ก ๐ h๐๐๐
๐ ๐๐ฃ๐๐๐๐ ๐๐๐ก๐๐๐ h๐ก ๐๐๐๐๐Lets assume depreciation is zeroโฆ
h๐ ๐๐๐๐ ๐ >๐ ๐
TO THINK ABOUT: HARROD-DOMAR GROWTH MODEL
If the poor save more than the rich, how would policies that benefit the rich affect growth in the model looked at above?
Think about how we can formulate this into the modelโฆ.
Lets assume depreciation is zeroโฆ
h๐ ๐๐๐๐ ๐ >๐ ๐๐๐๐๐๐๐ h๐ ๐๐๐๐๐ h๐ก ๐ h๐๐๐
๐๐๐๐๐๐ h๐ ๐๐๐๐๐ h๐ก ๐๐๐๐๐
TO THINK ABOUT: HARROD-DOMAR GROWTH MODEL
If the poor save more than the rich, how would policies that benefit the rich affect growth in the model looked at above?
Think about how we can formulate this into the modelโฆ.
Lets assume depreciation is zeroโฆ
h๐ ๐๐๐๐ ๐ >๐ ๐
๐๐๐ก ๐ ๐๐ฃ๐๐๐๐ ๐๐ h๐๐๐
๐๐๐ก ๐ ๐๐ฃ๐๐๐๐ ๐๐ ๐๐๐๐
TO THINK ABOUT: HARROD-DOMAR GROWTH MODEL
If we solve, we get:
How can we analyze the affect of changing income inequality?
TO THINK ABOUT: HARROD-DOMAR GROWTH MODEL
Which is:
If we increase , i.e. inequality, we increase , i.e. growthโฆh๐ ๐๐๐๐ ๐ >๐ ๐ยฟ0
๐ผ๐ ๐๐๐โ ๐๐h๐๐ฃ๐๐๐๐๐ ๐๐ก๐๐ฃ๐ h๐๐๐๐๐ก๐๐๐๐ ๐๐
TO THINK ABOUT: HARROD-DOMAR GROWTH MODEL
If we increase , i.e. inequality, we increase , i.e. growthโฆWhy is this the case?
What is missing from this analysis that makes such a result possible?
HOMEWORK
Read section 3.3