= Harrod-Domar Model =

The '''Harrod-Domar model''' is an early economics model of national production.

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== Formulation ==

Assume that production is a [[Economics/CobbDouglasProductionFunction|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''.

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== History ==

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]].



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CategoryRicottone