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| == Description == The model was designed to predict economic growth. In this manner, the work has been expanded upon in the [[Economics/SolowSwanModel|Solow-Swan model]]. The model has also been used to estimate how much investment is required in order to achieve a target GDP growth rate. ---- |
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| Assume that production is a function of capital investment: ''Y = f(K)'' | Assume that production is a [[Economics/CobbDouglasProductionFunction|Cobb-Douglas function]] of capital investment: ''Y = f(K)'' |
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| == History == | == Reading Notes == |
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| This model was formulated first in Domar's [[CapitalExpansionRateOfGrowthAndEmployment|Capital Expansion, Rate of Growth, and Employment]]. It has been implemented as a predictive model for how much investment is required in order to achieve a target GDP growth rate. This model was a foundation of the [[Economics/SolowSwanModel|Solow-Swan model]]. |
* [[AnEssayInDynamicTheory|An Essay in Dynamic Theory]], Roy F. Harrod, 1939 * [[CapitalExpansionRateOfGrowthAndEmployment|Capital Expansion, Rate of Growth, and Employment]], Evsey Domar, 1946 |
Harrod-Domar Model
The Harrod-Domar model is an early economics model of national production.
Description
The model was designed to predict economic growth. In this manner, the work has been expanded upon in the Solow-Swan model.
The model has also been used to estimate how much investment is required in order to achieve a target GDP growth rate.
Formulation
Assume that production is a Cobb-Douglas function of capital investment: Y = f(K)
Also assume that the marginal product of capital is constant: expressed as either...
dY/dK = c
Y = cK
Investment into capital over any period (ΔK) is composed of new savings from prior production (s saving rate; sY) less a depreciation term (δ depreciation rate; δK).
It follows that the growth rate of production is equal to sc - δ.
Reading Notes
An Essay in Dynamic Theory, Roy F. Harrod, 1939
Capital Expansion, Rate of Growth, and Employment, Evsey Domar, 1946