Theories of Economic Growth and

Development:
The Harrod Domar growth model and its application to LDCs
1.Meaning of Development:
* J.H.Mittleman
*Paul Baran
*Water Rodney
2.Notion of Third World
3.From Underdevelopment to Development
Liberal VS Marxist
4.Alternative Path of Development
a]Market Society Model
b]Welfare State Model
c]Socialist Model
d]Gandhian Model
5.Concept of Sustainable Developmet
6.Development of Environmentalism
7.Concept of Political Development
8.Nation building & State building
Development may be identified as a process in which system or institution is transformed into
stronger,more organized,more efficient and more effective form and proves to be more
satisfying in terms of human wants and aspiration.

J.H.Mittleman :-The increasing capacity to make rational use of natural and human resources
for social ends is development.
:-Underdevelopment= The blockage which forestalls a rational transformation
of the social structure.

PAUL BARAN (The Political Economy of Growth-19570)

:-describe development as ‘a far reaching transformation of society’s
economic,social and political structure of the dominant organization of
production,distribution and consumption.’
:-he pointed out that it has never been a smooth,harmonious process unfolding
placidly over time and space.’
Walter Rodney(How Europe Underdeveloped Africa,1974)
development=Individualism,Freedom,Creativity,Self Discipline,Responsibility
and material well being.
CHARACTERISTICS:-
1]Low level of economic and political development
2]Tendency of free from Capitalism and Socialism i.e.NAM
3]Decolonisation-ASIA+AFRICA=after WW2
-Latin America

Alfred Sauvy-coined term in order to comparision with prevalent social hierarchy of Europe before the French Revolution
1
Estate=The
Clergy

2
Estate=Nobility

3Estate=Commoners
Differentiation:-Increasing speecilisation of roles
or clear cut division of labour in society ;shift from
nationality
 2.Theories and 3.The International- 4.The Neoclassical,
1.The Linear Stage Of
patterns of structural dependence free-market
Growth Model
change,1950. revolution counterrevolution
• Rostow’s Stages of • An attempt to identify • The Neocolonial • Challenging the Statist
Growth - sequential characteristic features Dependence Mode Model: Free Markets,
stages in achieving of the internal process • The False-Paradigm Public Choice, and
development. of structural Model Market-Friendly
• Capital accumulation transformation that a • The Dualistic- Approaches
isn’t sufficient for “typical” developing Development Thesis • Traditional Neoclassical
development. economy undergoes as Growth Theory
•The Harrod it generates and
sustains modern
Domar growth economic growth and
model development.
• The Lewis Theory of
Development –Two
sector surplus model.
• Hollis Chenery’s
Structural Change and
Patterns of
Development
• Shifting Agri into
Industry
 The Harrod Domar
growth model
 The Harrod–Domar model is a classical Keynesian model of economic growth.
 It is used in development economics to explain an economy's growth rate in terms of the
level of saving and productivity of capital.

 It suggests that there is no natural reason for an economy to have balanced growth.

 The model was developed independently by Roy F. Harrod in 1939, and Evsey Domar in
1946,[2] although a similar model had been proposed by Gustav Cassel in 1924.

 The Harrod–Domar model was the precursor to the exogenous growth model.
 What is the Harrod-Domar Model?
The Harrod-Domar economic growth model stresses the importance of savings and investment as key determinants of
growth.
The Harrod Domar Growth model is a growth model and not a growth strategy!

 A model helps to explain how growth has occurred and how it may occur again in the future. Growth strategies are the
things a government might introduce to replicate the outcome suggested by the model.

 Basically, the model suggests that the economy's rate of growth depends on:
The level of national saving (S)
The productivity of capital investment (this is known as the capital-output ratio)
 • Economy does not expand
indefinitely or go into recession
1.WARRANTED

• The real rate increase in a country's

GDP per year.
2.ACTUAL

• An economy requires to maintain full

3.NATURAL RATE employment
OF GROWTH
 Investment

Income Productive
creation Capacity
 Productive Employ
INCOME capacity
ment

Link between Demand & Supply. Employment=Net Investment

should expand continuously.
PROBLEMS WITH THE
HARROD DOMAR •The model implies that growth is the same as development. Development is an improvement in factors such as health,
education, literacy rates and a decline in poverty levels. Development alleviates people from low standards of living into
proper employment with suitable shelter.

GROWTH MODEL
Development

•The model focuses on acquiring foreign aid. Foreign aid can be difficult to pay back afterward.

Foreign Aid

•Investment in physical capital in developing countries is not efficient. There are corruption and wastage, so results are not
Physical always as expected. Even with more efficient capital, there might not be skilled labor to use the machines efficiently.
Capital

•Developing nations tend to have low marginal propensities to save. Families usually spend the additional income earned
rather than save it. Increasing the savings ratio will be difficult.
Savings Ratio

•In an undeveloped financial system, the availability of increased savings may not translate into extra funds for investment.
The country may not have the system to maximize savings into loans for businesses.
Financial
System