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B Y
R A B E E H O K
S H A R A T H G . P I L L A I
P O N N Y M A R Y P I O U S
Economic planning and
development models
Economic planning and development model
 There are three models of economic planning and
development model
1. Mahalanobis...
Mahalanobis model
 This model is known as a model of economic
development
 Created by soviet economist GA feldman in 192...
implementation of model
 The model was introduced in 2nd five year plan
 Prime minister nehru implemented this plan
 1s...
Assumption
 Assumptions of a close economy
 Consist of 2 sectors
1. Consumption goods sector C
2. Capital goods sector K...
Basics of the mode
 The full capacity output equation is as follows:
 In the model the growth rate is given by both the ...
Criticism
 One of the most common criticisms of the model is
that Mahalanobis pays hardly any attention to the
savings co...
Kaldor model
 Nicholas Kaldor in his essay titled A Model of Economic
Growth, originally published in Economic Journal in...
Assumption
 The basic properties of Kaldor's growth model are as follows:
 Short period supply of aggregate goods and se...
Harrod-Domar Theory
 The Harrod–Domar model is an early post keynesian model
of economic growth. It is used in developmen...
Derivation of output rate
Criticisms of the model
 The main criticism of the model is the level of assumption, one
being that there is no reason fo...
Mahalanobis Model Kaldor model Harrod- Domar Model
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Mahalanobis Model Kaldor model Harrod- Domar Model

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There are three models of economic planning and development model
Mahalanobis Model
Kaldor model
Harrod- Domar Model

Published in: Economy & Finance, Technology
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Mahalanobis Model Kaldor model Harrod- Domar Model

  1. 1. B Y R A B E E H O K S H A R A T H G . P I L L A I P O N N Y M A R Y P I O U S Economic planning and development models
  2. 2. Economic planning and development model  There are three models of economic planning and development model 1. Mahalanobis Model 2. Kaldor model 3. Harrod- Domar Model
  3. 3. Mahalanobis model  This model is known as a model of economic development  Created by soviet economist GA feldman in 1928 and by statistician prasanta chandra mahalanobis in 1953  Mahalanobis is central to second 5 year plan  Shift in the pattern of industrial investment towards building up a domestic consumption  In order to reach a high standard in consumption, investment in building a capacity in the production of capital good is required  In long run the presence of high capacity in the capital good sector expands the capacity in the production of consumer goods
  4. 4. implementation of model  The model was introduced in 2nd five year plan  Prime minister nehru implemented this plan  1st 5 year plan stressed on investment for capital accumulation  The model inability to cope with the real constraints  Ignores fundamental choice problems of planning  the lack of connection between the model and actual selection of projects by GOVT.
  5. 5. Assumption  Assumptions of a close economy  Consist of 2 sectors 1. Consumption goods sector C 2. Capital goods sector K • Capital goods are not shift able • full capacity production • investment is determined by supply of capital good • No changes in prices • Capital is the only scares factor • Production of capital goods is independent of production of consumer goods
  6. 6. Basics of the mode  The full capacity output equation is as follows:  In the model the growth rate is given by both the share of investment in the capital goods sector,  the share of investment in the consumer goods sector  If we choose to increase the value of to be larger than , this will initially result in a slower growth in the short-run, but in the long run will exceed the former growth rate choice with a higher growth rate and an ultimately higher level of consumption. In other words, if this method is used, only in the long run will investment into capital goods produce consumer goods, resulting in no short run gains.
  7. 7. Criticism  One of the most common criticisms of the model is that Mahalanobis pays hardly any attention to the savings constraint  Developing countries however do not have this tendency, as the first stages of saving usually come from the agricultural sector.  He also does not mention taxation, an important potential source of capital.  A more serious criticism is the limitation of the assumptions under which this model holds,.
  8. 8. Kaldor model  Nicholas Kaldor in his essay titled A Model of Economic Growth, originally published in Economic Journal in 1957  postulates a growth model, which follows the Harrodian dynamic approach and the Keynesian techniques of analysis.  In his growth model, Kaldor attempts "to provide a framework for relating the genesis of technical progress to capital accumulation",  According to Kaldor, "The purpose of a theory of economic growth is to show the nature of non-economic variables which ultimately determine the rate at which the general level of production of economy is growing, and thereby contribute to an understanding of the question of why some societies grow so much faster than others."
  9. 9. Assumption  The basic properties of Kaldor's growth model are as follows:  Short period supply of aggregate goods and services in a growing economy is inelastic and not affected by any increase in effective monetary demand. As it is based on the Keynesian assumption of "full employment".  The technical progress depends on the rate of capital accumulation. Kaldor postulates the "technical progress function", which shows a relationship between the growth of capital and productivity, incorporating the influence of both the factors. Where the capital-output ratio will depend upon the relationship of the growth of capital and the growth of productivity.  Wages and profits constitute the income, where wages comprise salaries and earnings of manual labour, and profits comprise incomes of entrepreneurs as well as property owners. And total savings consist of savings out of wages and savings out of profit. 
  10. 10. Harrod-Domar Theory  The Harrod–Domar model is an early post keynesian model of economic growth. It is used in development economics to explain an economy's growth rate in terms of the level of saving and productivity of capital. It suggests that there is no natural reason for an economy to have balanced growth. The model was developed independently by Roy F. Harrod in 1939, and Evsey Domar in 1946.  The shortcomings of the Harrod–Domar model have been discussed in the late 1950s by neoclassical economists, which eventually led to the development of the Solow–Swan model.  According to the Harrod–Domar model there are three kinds of growth viz. warranted growth, actual growth and natural rate of growth.  Warranted Growth rate is the rate of growth at which the economy does not expand indefinitely or go into recession.
  11. 11. Derivation of output rate
  12. 12. Criticisms of the model  The main criticism of the model is the level of assumption, one being that there is no reason for growth to be sufficient to maintain full employment.  Model is based on the belief that the relative price of labour and capital is fixed, and that they are used in equal proportions.  The model explains economic boom and bust by the assumption that investors are only influenced by output (known as the accelerator principle) this is now widely believed to be false.  In terms of development, critics claim that the model sees economic growth and development as the same; in reality, economic growth is only a subset of development.  Another criticism is that the model implies poor countries should borrow to finance investment in capital to trigger economic growth; however, history has shown that this often causes repayment problems later.

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