Harrod-Domar Growth Model

Discipline: Economics

Named after English economist Roy Harrod (1900-1978) and Polish-born American economist Evsey Domar (1914-1997), Harrod-Domar growth model postulates three kinds of growth:

(1) warranted growth (the rate of output at which firms feel they have the right level of capital and do not wish to expand or decrease investment);
(2) natural rate of growth (corresponding to growth in the labor force);
(3) actual growth (resulting from a change in aggregate output).

However, there are problems between actual and natural growth and warranted and actual growth. The factors that determine actual growth (propensity to save, investment) are autonomous from those factors determining natural growth (birth control, tastes of population, and so on). Disequilibrium arises in a situation in which warranted growth is different to the natural rate of growth; when equal steady growth is accompanied by full employment or a constant rate of unemployment occurs.

Also see: natural and warranted rates of growth, Solow economic growth

R F Harrod, Towards a Dynamic Economics (London, 1948);
E Domar, Essays in the Theory of Economic Growth (New York, 1957)


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