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Harrod-Domar Model

The Harrod-Domar model is an economic growth model that was developed by Sir Roy Harrod and Evsey Domar in the 1930s and 1940s. The model is based on the idea that the rate of economic growth depends on two key factors: the amount of capital investment in the economy and the level of productivity of that capital.

The basic idea behind the Harrod-Domar model is that a certain level of investment is required to generate a given level of economic growth. The amount of investment needed depends on the capital-output ratio, which is the amount of capital required to produce one unit of output. The higher the capital-output ratio, the more investment is needed to generate a given level of growth.

The model also emphasizes the role of productivity in economic growth. Productivity refers to the efficiency with which capital is used to produce output. If the productivity of capital increases, more output can be produced with the same amount of capital investment, leading to higher economic growth.

The Harrod-Domar model has been used to analyze the economic growth of developing countries. It suggests that these countries need to invest heavily in capital to achieve high rates of economic growth. However, the model has been criticized for its focus on capital investment at the expense of other factors, such as technology, education, and institutional development, which are also important for economic growth.

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