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| * The Domar model gave way to the [[Economics/SolowModel|Solow model]] in economics. International finance never moved on from it. | * The Domar model gave way to the [[Economics/SolowSwanModel|Solow-Swan model]] in economics. International finance never moved on from it. |
The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics
The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics (ISBN: 9780262550420) was written by William Easterly in 2002.
Author essentially argues that--regardless of issues like corruption, deprivation of human rights, unequal distribution, etc.--economic growth at the national level trickles down to improve the lives of the very poorest. And even a marginal improvement can bring significant improvements to quality of life.
Discussion of Harrod-Domar model. In order to reach a target growth rate, a calculable amount of investment must be secured to fill a financial gap.
- Fit into other, contemporary theories.
- Fit into political and cultural fear of communism.
Rostow's stages of economic growth is a great example of both.
- Suggested that increasing investment from 5 to 10 percent of income was the causal step to starting self-sustaining growth.
Forced investment was credited with the rapid production growth rate seen in the USSR.
Work of Chenery and Strout as well.
- Successive aid injections were more effective.
The Domar model gave way to the Solow-Swan model in economics. International finance never moved on from it.
John Holsen developed a computerized minimum standard model (MSM) based on it for the World Bank. It was slightly revised (RMSM) within a couple years, but was not substantially changed for decades.
Similar models are used by the IMF and European Bank for Reconstruction And Development.
Author specifically discusses Ghanaian government and the Volta dam project
The author tests the Domar model with current data. It fits just 17 of 88 countries comparative data. Furthermore, the assumption that savings rates increase with aid was validated in just 6.
More fundamentally, the author tests the assumption that increased investment causes short-term growth. Essentially a replication of similar work by Blomström, Lipsey, and Zejan. Author uses 4-year periods, on the basis that international finance economists usually project 4 years forward in reports. They find just 4 countries show this property at any time: