4. Hollis chenery
Extention of harrod-domar model
Seperate indipendent constrain
Targeted growth
Foreign aid –FILL GAP –ACHIEVE GROWTH
S<required investment
Net export earning
5.
6. Targeted growth is high ,invt is high
Domestic saving depends upon distribution of
income
LDC import needed for development
Export determine world price and quantity .that
change weather and natural condition
8. We cannot reduce import.becuase larger
consumer demand and capital requirement
Chenry suggest restrictions on pattern of
consumption,distribution of incom,growth of
employment and exchange rate
Bridge adjustment without foreign aid
But retard growth
Resourse optimally allocated ,only saving
constrain
9. Assuming only capital goods import and consumer goods
produce domestically ,some structural rigidities
No substistution possible b/t capital goods and domestic
factors of production
No substistution possible b/t d/f consumer goods in
consumption
S gap > FE gap –saving constrain
FE gap> S gap - FE constrain
Foreign aid removing saving gap by inflow of K.
10. In long run amount of foreign aid requirement will=
increasing in invt and increasing in saving by generated
by rising income.
Saving gap disappear when targeted growth rate
sustained
Foreign exchange gap will disappear when export rise
and cover the required import for targeted growth of
economy.
11. LIMITATIONS
increasing domestic saving cannot utilise a substitute
for required foreign exchange to maintain invt.
It assume a country cannot follow export promotion
and import substistution
It assume structural rigidities and nonsubstitutabilities
b/t d/f types of goods
as fullemployment---invt in k goods through inflation--
-lead inflation
12. Does not consider absorptive capacity of economy.
Best in calculating foreign aid requirement. But
difficult in fixing import requirement,
potential domestic saving
expected foreign exchange earning.
13. IMPORTANCE
Higly useful in LDC inorder to estimate
1. capital requirement
2.how much generate with economic devt.
3. how much need from abroad.
LDC’s are low saving ,low invt. Economies. So
existing rate of saving not enough for development.
To mobilise domestic savings,budget surplus not
sufficient
14. certain capital goods cannot domestically produced.
Capital goods not domestically produced import
foreign aid foreign exchange gap BOP crisis
external debt further foreign exchange gap
narrow import capital
15. Help to understand required foreign resource to fill the
gap in FE GAP to develop the effort of the country
S-I > FE Narrowed by inflow of capital
FE > S-I Foreign aid to more invt.
Increases and saving generated
by rising income
Help to achieve the targeted growth rate of economy.