Harrod-Domar Research Articles

Modernisasi Melalui Pembangunan Menuju Kesejahteraan Masyarakat Indonesia

Indonesia, as a developing country, faces challenges in improving people's welfare through development that is not yet optimal. Under the leadership of President Joko Widodo, the government is focusing on significant infrastructure development in an effort to encourage economic growth and modernization. Using Harrod Domar's modernization theory, this research examines how investment in infrastructure can encourage Indonesia's economic growth. The method used is literature study, with analysis of literature related to infrastructure development and modernization theory. The results show that toll road construction has a positive impact on transportation efficiency, community mobility, and economic growth, although it also faces several challenges such as environmental impacts and community involvement. The construction of toll roads, especially through collaboration between the government and the private sector, is an example of the application of Harrod Domar's theory in the context of Indonesian modernization, showing that effective investment in infrastructure can increase productivity and community welfare.

Does capital efficiency influence economic growth in Bangladesh? Application of the Harrod-Domar model

PurposeThe main purpose of this paper is to analyse the influence of capital efficiency on the economic growth of Bangladesh using the Harrod-Domar (H-D) model.Design/methodology/approachWe use annual data from 1980 to 2019 for this paper. Three steps are taken in the data analysis. First, to check the existence of a unit root, we use the augmented Dickey-Fuller (ADF) test and to determine co-integration among the variables, we use the Johansen-Juselius co-integration test. Next, for long-run estimation, we use the dynamic ordinary least square (DOLS) estimator. The sensitivity of the long-run estimations is further checked by the fully modified OLS (FMOLS) and autoregressive distributed lag (ARDL) estimators. Lastly, we use the Granger causality test to determine the long-run causality among the variables.FindingsThe long-run co-integration test validates the co-integrating relationship among the variables. DOLS estimations reveal that the economic growth of Bangladesh is negatively associated with the incremental capital output ratio (ICOR), validating the notion that capital efficiency matters for achieving higher economic growth. On average, an increase in ICOR by a unit tends to reduce economic growth in the long term by 0.75 percent. Our results also reveal no significant relationship between savings and economic growth when the model is extended. Finally, causality results indicate unidirectional causality between ICOR and economic growth.Practical implicationsBased on the results obtained, we argue that the enhancement of capital productivity could bring efficiency because ICOR is an inverse of capital productivity. Since Bangladesh’s capital productivity is considerably low compared with other neighbouring countries, it is suggested that firms should gradually move towards technological advancement and enhance economies of scale, etc. in the long run. Moreover, policies in favour of continuous skill development programmes could be highly effective in increasing capital productivity given that capital follows a vintage structure.Originality/valueThis is the first paper to analyse the economic growth pattern of Bangladesh using the traditional H-D model by incorporating variables such as savings and ICOR and also by relaxing the assumption of time-invariant (i.e. fixed) data of the variables. Moreover, this paper extends the traditional H-D empirical model by introducing key indicators and time breaks for Bangladesh’s economy through a stepwise regression process.

Appraising the Relationship Between Foreign Aid on Poverty Reduction in Nigeria

This paper examines the impact of foreign aid on economic growth and poverty reduction in Nigeria, using the Autoregressive Distributed Lag (ARDL) technique for regression analysis. The study employs time series data from 1986 to 2020 to analyze the long-run and short-run relationship between foreign aid, economic growth in Nigeria. The study adopted the combined theories of economic growth of the Harrod-Domar Model, the Two-Gap Model and the Three- Gap Model in theoretical outlook. The data set is used to test the long-term relationship as well as the short-term relationship. The results show that foreign aid has a positive and significant impact on economic growth and poverty reduction in Nigeria in both the long-run and short run. The study concludes that foreign aid can be an effective tool for promoting economic growth and poverty reduction in Nigeria. The study recommended that in targeting aid towards infrastructure development, foreign aid can be used to fund infrastructure projects like building and upgrading roads, ports, and power plants to create jobs and increase economic activity. It also recommended investing in education and healthcare, foreign aid can be used to support education and healthcare initiatives, to improve the overall health and well-being of the population and increase productivity Economic-growth, Foreign aid, Poverty, Nigeria, Population, Three-Gap Model Two-Gap Model

Guatemala and Libya: How the Harrod-Domar Growth Model Helped Define Economic Growth

Guatemala and Libya: How the Harrod-Domar Growth Model Helped Define Economic Growth

Toward a general neoclassical theory of economic growth

The Harrod-Domar (H-D) growth model assumes a fixed capital-output ratio, signifying absence of substitutability between capital and labor, leading to a “knife-edge” problem wherein balanced growth of capital (fixed warranted rate) and labor (fixed natural rate) occurs only by accident, preventing the attainment of macroeconomic stability with full employment. The neoclassical Solow-Swan (S-S) growth model provides an elegant solution to the H-D problem by endogenizing the warranted rate via the saving-investment relation, wherein capital growth is a function of a fully adjusting income-capital ratio (inverse of the H-D capital-output ratio)— allowing for smooth substitutability between capital and labor while keeping the natural rate exogenously fixed. The S-S model implies a positive, albeit temporary output growth effect of a higher saving rate. The present paper extends the capital-labor ratio’s influence onto the natural rate via effects on labor productivity through a modified Arrow learning by doing framework, and via labor participation through real wage adjustments. Thus, the positive output growth of a higher saving rate, although temporary in the short run as in the S-S model, is permanent in the long run through adjustments in both the warranted and natural rates—a generalization of the Solow-Swan model.

Appraising The Relationship Between Foreign Aid On Economic Growth In Nigeria

This paper examines the impact of foreign aid on economic growth and poverty reduction in Nigeria, using the Autoregressive Distributed Lag (ARDL) technique for regression analysis. The study employs time series data from 1986 to 2020 to analyze the long-run and short-run relationship between foreign aid, economic growth in Nigeria. The study adopted the combined theories of economic growth of the Harrod-Domar Model, the Two-Gap Model and the Three- Gap Model in theoretical outlook. The data set is used to test the long-term relationship as well as the short-term relationship. The results show that foreign aid has a positive and significant impact on economic growth and poverty reduction in Nigeria in both the long-run and short run. The study concludes that foreign aid can be an effective tool for promoting economic growth and poverty reduction in Nigeria. The study recommended that in targeting aid towards infrastructure development, foreign aid can be used to fund infrastructure projects like building and upgrading roads, ports, and power plants to create jobs and increase economic activity. It also recommended investing in education and healthcare, foreign aid can be used to support education and healthcare initiatives, to improve the overall health and well-being of the population and increase productivity.

Comparing the Harrod-Domar, Solow and Ramsey growth models and their implications for economic policies

PurposeThe principal aim of this paper is to review three basic theoretical growth models, namely the Harrod-Domar model, the Solow model and the Ramsey model, and examine their implications for economic policies.Design/methodology/approachThe paper utilizes a positivist research framework that emphasizes the causal relationships between the variables in each of the three models. Mathematical methods are employed to formulate and examine the three models under study. Since the paper is theoretical, it does not use any empirical data although numerical illustrations are provided whenever they are appropriate.FindingsThe Harrod-Domar model explains why countries with high rates of saving may also enjoy high rate of economic growth. Both the Solow and Ramsey models can be used to explain the medium-income trap. The paper examines the impact of Covid shocks on the macroeconomy. While the growth rate can be recovered, it may not always possible to recover the output level.Research limitations/implicationsFor the Harrod-Domar model, the public spending decreases the private consumption at the period 1, but there is no change in the capital stock and hence the production in subsequent periods. For the Ramsey model with AK production function, both the private consumption and the outputs will be lowered. In both the Harrod-Domar and Ramsey models with Cobb-Douglas production function, if the debt is not high and the interest rate is sufficiently low, it is better to use public debt for production rather than for consumption. If the country borrows to recover the Total Factor Productivity after the Covid pandemic, both the Harrod-Domar and Ramsey models with Cobb-Douglas production function show that the rate of growth is higher for the year just after the pandemic but is the same as before the pandemic.Practical implicationsThe economy can recover the growth rate after a Covid shock, but the recovery process will generally take many periods.Social implicationsThis paper focuses on economic implications and does not aim to examine social implications of policy changes or Covid-type shock.Originality/valueThe paper provides a comparison of three basic growth models with respect to public spending, public debts and repayments and Covid-type shocks.

Applicability of Harrod-Domar Model in Explaining Economic Growth in the Philippines

This paper ought to determine and examine whether the Harrod-Domar model is applicable in explaining the economic growth in the Philippine setting from 1981 to 2021, whereas the variables are Gross Savings and Gross Capital Formation. Using the multivariate Ordinary Least Squares (OLS) regression, the results showed that all independent variables are shown to be positively significant parameters of GDP growth. Furthermore, several tests employed in the study, including the Variance Inflation Factor, the Breusch-Godfrey test, Breusch-Pagan-Godfrey, have no evidence of multicollinearity or autocorrelation and heteroscedasticity in the regression model. The Harrod-Domar Model economic growth that is focused on in this study was popular among developed countries, yet considering the Philippines is one of the developing countries in the world, the researchers aim to understand whether the Harrod-Domar Model is applicable in the Philippine settings.

Weaknesses of MMT as a guide to development policy

Abstract This paper addresses the limitations of Modern Money Theory (MMT) as a guide to development policy. We explore two main questions on this topic: whether policies championed by MMT advocates (i) ought to be implemented in low- and middle-income economies and (ii) can be implemented. In relation to the first question, we argue that the MMT literature mischaracterises the essence of the development challenge for low- and middle-income economies. Our argument is that the chief long-run growth challenge faced by developing countries concerns structural transformation rather than general aggregate demand insufficiency. We use several formal representations of the consumption–investment trade-off in growth theory, found in the Harrod–Domar growth model, the Feldman–Mahalanobis model and Kalecki’s 1963 growth model to illustrate this point. Concerning the second question, we argue that even if MMT had the correct diagnosis of the principal growth challenge faced by developing countries, its chief policy recommendations would likely be counter-productive if implemented outside of select advanced economies. We draw from the international economics literature on currency hierarchy and exchange rate volatility to illustrate this point.

Reading the Evolution of the World Bank’s Development Discourse on the Economic Theory

Continuous impact of the international institutions and organizations on the world economic order would not be repudiated. One of them is the World Bank (WB). Bank was established for the purpose of reconstruction of the Western Europe, which was destroyed subsequent to the Second World War, and it also has the characteristic of being an institution determining the development discourses in the world. Bank specifies its development discourse in line with the evolution of the economic theories. On the other hand, it also contributes to the evolution of the economic theory by means of the development discourses it composes. Therefore, it is possible to make mention about the existence of a two-way process between development discourse of the Bank and the evolution of economic theories. This two-way process has been illuminated in this study. It has been demonstrated that Bank has developed a discourse in parallel with the basic principles of Neoclassical theory, Keynesian theory, Harrod-Domar growth model and Neo-Marxist theory from its foundation until the mid-1960s. Since the 1970s, Bank has adopted a discourse based on neoliberal theory as a result of the Keynesian theory’s responseless to the particular structural problems. The rise of the New Institutional Theory in the 1990s brought about Bank’s adoption of discourse which focuses on the state-market cooperation. It would be feasible to claim that Bank has carved out a discourse which hinges on sustainable development in period from the 2000s to the present. However, it is thought that the discourse being constituted both in 1990s and in 2000s has not been parted from the core of the neoliberal theory.

Effect of Domestic Savings and Investments on Nigeria’s Economy: 1981-2020

This study assessed effect of gross domestic savings and investments on Nigeria’s economy. The poor economic well-being in Nigeria seems to be caused by poor savings and consequent poor investment. There seems to be weak links among domestic savings, domestic investment and economic growth in Nigeria possibly due to low income, policy inconsistencies, low productivity among others. The general objective of the study was to examine the effect of gross domestic savings and investments on the Nigerian economy for the period 1981-2020. The data used were extracted from the data base of World Development Indicators. Harrod-Domar growth Model and neoclassical growth theory of savings and investments explained the conceptual framework of this study. The unit root test, co-integration test and regression analysis were used for data analysis. Using regression techniques the results showed that there is positive and significant relationship between gross domestic savings and gross domestic product per capita; there is negative but significant relationship between gross domestic investment and gross domestic product growth rate per capita; there is positive and significant relationship between gross domestic savings and adjusted net national income per capita; and there is negative but significant relationship between gross domestic investments and adjusted net national income per capita in Nigeria. Thus, gross domestic savings and investments contributed to economic growth and development in Nigeria. The work recommended that the Nigerian monetary authority should sustain the monetary policy rate between 11% and 12% and encourage savings deposit rate to be between 1.5% and 2.5%; and investment environment should be conducive through policy consistency from the Government; and that capital flight need to be curbed by improving ease of doing business in Nigeria by streamlining business registration process, and ensuring enforcement of national digital policy.

Determinants analysis of GDP Per capita’s growth and state regulations of 7 ASEAN countries

Labour, entrepreneurship, and technology are important components in the success of GDP Per capita, the existing workforce is not only fixated by numbers but also must be focused on quality to have a significant impact, in addition to the ability and desire of a nation to grow interested in becoming entrepreneurs. This research base on Solow and Swan's Theory said that economic growth was influenced by the growth of production factors such as population, labor, and capital accumulation, as well as the level of technological progress described in the development of knowledge. There is an element of technological progress in the Solow-Swan model which is the main differentiator from the Harrod-Domar growth model. This study used 42 observers consisting of 7 ASEAN countries, namely; Singapore, Thailand, Malaysia, Indonesia, Philippines, Vietnam, and Cambodia, using multiple linear regression and using classical assumption test. The research method in this study uses multiple linear regression of panel data, using the classical assumption test. To get the best model, the data will be tested for Pool Effect, Fix Effect and Random Effects Models, while the determination of the best model is based on the results of the Chow and Hausman tests. The results are shown that labor does not have a significant influence on GDP Per Capita revenue, while the entrepreneurship Index (GEI) and Technology Index (GII) variables have a positive and significant impact on GDP Per Capita revenue. The workforce hasn't affected, which is broadly described in this study because the absorption of labor has not been optimal or the provision of jobs whose proportions are not balanced with the number of the workforce.

Complex analysis of the state of the main elements of the mechanism for the development of the economic potential of the enterprise

The complexity of the relationship between the existing elements of the organizational and economic mechanism for the development of the economic potential of an enterprise, as an integral system, is revealed, which is a consequence of the fact that its individual subsystems and components are of a probabilistic nature. A comprehensive analysis of the state of the elements of the mechanism for the development of the economic potential of an enterprise is represented by types of analysis, objects of analysis, and the results of analysis. To determine the place of the organizational and economic mechanism for the development of economic potential, using the model of R. Solow, the qualitative and quantitative composition of the enterprise’s functions is investigated. Factor analysis according to the Solow model shows the special importance of modern scientific and technological progress, and the Solow remainder in his model reflects a number of other factors, including labor resources. The analysis shows that the overall economic growth in 2015-2019 cannot be compensated for only by an increase in labor and total capital. First of all, it can only be justified by the use of the state. The use of the Cobb-Douglas production function in the Solow model allows one to determine the nonlinear dependence of labor productivity on its capital-labor ratio. The Harrod-Domar model was also used, which showed that enterprises are able to provide capital gains in the current year through investments in the previous year. This was demonstrated by the example of the fixed capital of the country’s industry as an integral element of production potential.
 Also, on the basis of the research, more generalizing conclusions can be drawn. The influence of industry on the national economy as a whole is as follows: the development of industry will stimulate the growth of other sectors of the economy through an increase in demand for their products and this will become the main catalyst for the development of the Ukrainian economy and will increase GDP; the growth of the industrial sector will increase the competitiveness of Ukrainian workers in the global labor market and reduce the unemployment rate; industrial development will increase the role of Ukraine in the international economic market and will increase the volume of foreign exchange earnings; industrial modernization and the introduction of high-tech production will increase the potential of the economy as a whole.

Conceptualizing Microfinance Services, Government Regulation and Performance in the Context of Coffee Entrepreneurs: A Theoretical Review

Microfinance is a poverty reduction gadget since it offers financial assistance to those in need and therefore it is a game plan for uplifting small and medium enterprises. While it has been studied widely in the context of small and medium enterprises, little literature reflects coffee entrepreneurs. This paper, therefore, shows a review of existing theoretical and empirical literature on constructs of microfinance services, government regulations and performance in the context of coffee entrepreneurs. The specific objectives of the study were to discuss the key constructs, establish theories that link these constructs and then recommend a conceptual framework which guides future studies on the highlighted knowledge gaps. The study was anchored on resource-based view supported by, Harrod-Domar model, poverty alleviation and diffusion of innovation theories. The study was a desktop review, and the scores show that studies focused on a direct relationship between microfinance services and small and medium enterprises but did not incorporate coffee entrepreneurs and the moderating effect of government governments. It is therefore recommended that further research should include the context of coffee entrepreneurs to show the effects of microfinance on these entrepreneurs and the moderating variable of government regulations.

Comparison of Two Dynamic Models of Economic Growth

Two dynamic models of economic growth with the same balance equation are considered. First, we establish the solution of the Harrod-Domar model with time-dependent coefficient of the capital intensity of income growth. (Previously, the only constant coefficients were considered.) Second, we show that in the Solow model with the Cobb-Douglas production function, the capital intensity of income growth depends on time. Comparing these models, we demonstrate the effectiveness of the setting optimal control problems (maximization of the integral discounted utility function) in the extended the Harrod-Domar model.

The Harrod-Domar Model, the Money Market and the Elasticity of the Investment Demand Curve

The Harrod-Domar Model, the Money Market and the Elasticity of the Investment Demand Curve

Trade Liberalisation and Its Impact on the Informal Sector-A Study for the BRICS

This paper empirically investigates the impact of trade liberalisation on the informal economy for the BRICS. A common criterion for choosing these countries was 1) trade reforms and 2). presence of a large informal sector. While trade liberalisation and globalisation may have propelled economic growth for these countries, their impact on the unorganised sector in these countries is not so straightforward. These countries have witnessed a rise in the incidence of informality, which is concerning, as it may lead to higher inequality, lower efficiency and other development related issues. This paper attempts to investigate if trade reforms undertaken by the BRICS, have impacted their informal economy. There are numerous channels through which trade can affect the informal sector in an economy, as suggested by the Harrod-Domar model or the Harris-Todaro framework. The paper reviews the literature on the theoretical and empirical channels through which trade reforms have impacted the unorganised/informal sector in different countries. Empirical investigations show no uniformity in results across various countries. Using the definition of informality as given by Kauffmann and Kaliberda (1996), this paper attempts to investigate whether trade reforms, measured by the volume of exports and imports of the BRICS, have any impact on the informal sector of these countries. Panel data technique is used to determine the same for these countries. The main conclusion that emerges after empirical investigation is that the relationship between trade and informality is weak. Trade volumes do not have a significant impact on the informal economy in the BRICS.

The Implementation of Harrod-Domar Economic Growth Model in North Sulawesi, Indonesia

The study aimed to: Understand and analyze the poors perceptions and attitude on poverty reduction programs, identify, elaborate, and analyzethe term poor among the poor people and identify and analyze meaning and expectation on poverty reduction program. This research applies developmental research method; the analysis model uses SEM (Structural Equation Modeling). Before applying this model, goodness of fit was conducted in order to find out whether this model can be accepted or not. The model could achived goodness of fit; therefore, all variables could follow hypothesis test. The research result showed the changed in economic structures have direct significant influence on the government’s stimulus and economic growth. Capital establishment also has direct unsignificant effect on the government’s stimulus. Capitall establishment has significant influence to the economic growth and the socio cultural influence does not have significant influence to the economic growth. These results indicate that the greater stimulus of the government signified by precise goals leads to better economic growth.

Estimating farm-level financing gap: a technical efficiency approach

PurposeMuch attention has been paid to farm credit access with less focus on determining the actual credit amount needed to bring about a specified increase in productivity relative to the finance being sought. The paper aims to discuss this issue.Design/methodology/approachUsing 2016 cross-sectional data of plantain farmers, the authors employ the Cobb–Douglas stochastic frontier production function to determine the technical efficiency (TE) of each farmer. Current plantain quantity produced by farmers and the TE are then used to estimate plantain quantity at a target efficiency. The finance needed to produce at the target efficiency is estimated using the Harrod–Domar (HD) growth equation and the authors then subtract the farmers’ savings from the estimated amount to determine the financing gap of the farmers.FindingsResults of this study show that the actual amount required to improve the productivity of farmers to target levels of TE can be estimated and that credit amount granted to farmers can be tied to a specific production efficiency. Credit schemes with interest rates below 9 per cent are more beneficial to farmers while access to credit is determined by interest rate, education, credit process duration, land ownership and asset value in the study area.Research limitations/implicationsThe implication of this research is that it opens up the possibility of further exploring the application of the HD theory at the micro level.Practical implicationsThe findings in this study have important implications on the provision of agricultural credit to small farmers. The first is that the TE of farmers plays a very critical role in determining the actual amount of credit needed to bridge the farm-level financing gap and impact positively on productivity. Second, while it is important to bridge the farm-level financing gap, this can only be beneficial to the farmers at single-digit interest rates below 7 per cent. Finally, granting of credit to farmers can be tied to specific production increase target to reduce indiscipline and mismanagement in credit use.Social implicationsThe findings of this study will go along in helping to prevent mismanagement and indiscipline in the use of scarce financial resources in agricultural production.Originality/valueThis study is the first of its kind, using TE and bringing the HD equation down to the farm level to estimate the exact amount required by farmers to bring about specific increase in production, determining the credit amount beyond which mismanagement may set in.

Effect of International Capital Inflows on Economic Growth of Nigeria

The study examined the effect of international capital inflows on economic growth of Nigeria for the periods, 1986 to 2016. The study employed four core channels of international capital inflows which includes foreign direct investment (FDI), official development assistance (ODA), personal remittances (REM), and external debt stock (EXTDS) into Nigeria as the explanatory variables and GDP growth rate as the dependent variable. The model of the study was hinged on the Harrod-Domar growth model and employed Johansen co-integration and Ordinary Least Square (OLS) techniques for data analyses. The result showed that international capital inflows have long run effect on economic growth of Nigeria. Specifically, the OLS revealed that FDI and REM had significant positive effects on economic growth. However, EXTDS and ODA had no significant effects on economic growth. The study further showed that international capital is a powerful tool for boosting economic growth of Nigeria(R-square = 71%). The recommendations among others include that policy makers should forthwith discourage the use of external debt and official development assistance in Nigeria.