3. Harrod-Domar Model
08/03/2014Subir Maitra/ATI-CSSC iasstudymat.blogspot.in3
The Harrod-Domar model was developed independently by Sir Roy
Harrod in 1939 and Evsey Domar in 1946.
It is a growth model which states the rate of economic growth in an
economy is dependent on the level of saving and the capital output
ratio.
If there is a high level of saving in a country, it provides funds for firms
to borrow and invest. Investment can increase the capital stock of an
economy and generate economic growth through the increase in
production of goods and services.
The capital output ratio measures the productivity of the investment
that takes place. If capital output ratio decreases the economy will be
more productive, so higher amounts of output is generated from fewer
inputs. This again, leads to higher economic growth.
One-sector model: It aggregates all types of production into a single
total-the national product—without drawing any distinction between
different types of goods, specially capital and consumer goods.
g = Growth rate of national income
s = Savings rate
v= Capital-output ratio
g = s/ v
5. Mahalanobis Model
08/03/2014Subir Maitra/ATI-CSSC iasstudymat.blogspot.in5
The Frame of the Second Five Year Plan in India was
constructed on a theoretical foundation given by Prof. P. C.
Mahalanobis.
It goes back to certain planning models used in the
U.S.S.R and that given by Feldman.
Feldman-Mahalanobis model is a two-sector
development scheme, which was extended to a four-sector
model of planning.
Mahalanobis (1953) developed a two-sector model where
the entire net output of the economy was to be produced in
the investment goods sector and the consumer goods sector.
Mahalanobis extended this model to a four-sector model
which consists of (i) a sector producing investment goods;
(ii) a sector producing modern consumer goods (industrial
sector); (iii) a sector producing consumer goods by simple
methods (traditional agriculture and rural industries) and
(iv) a service sector (education and health etc.).
19. Objectives of planning and their compatibility
08/03/2014
Subir Maitra/ATI-CSSC
iasstudymat.blogspot.in19
Prof. B.S. Minhas stated: “Securing rapid economic
growth and expansion of employment, reduction of
disparities in income and wealth, prevention of
concentration of economic power, and creation of the
values and attitudes of a free and equal society have
been among the objectives of all our plans” (Minhas
B.S. : Planning and the Poor)
Economic Growth
Self-Reliance
Removal of unemployment
Reduction in income inequalities
Elimination of Poverty
Modernization
Inclusive growth
20. Mutual compatibility/consistency among
objectives
08/03/2014
Subir Maitra/ATI-CSSC
iasstudymat.blogspot.in20
Rapid Economic Growth and Employment: The process of
economic growth can be accelerated by the use of capital-
intensive high technology of production. But this type of
technology is generally labour-displacing. Thus a choice made
in favour of this type of technology could only be at the cost of
employment generation in the economy. Likewise, labour
intensive tech niques of production, generally create large
employment opportunities. But such techniques are relatively
less efficient; more employment may be created only at the
cost of possible higher rate of growth.
Economic Growth and Equality : If the objective of equity is
pursued seriously even by attempting redistribution of wealth
and income, it may have diverse effects on the rate of
economic growth. The propensity to save of the richer sections
of the society is generally higher than the propensity to
consume. A redistribution of income and wealth in favour of
poor would only mean that the available resources are being
diverted from saving to current consumption. Howsoever
desirable this diversion may be from the social point of view, it
cannot be practiced for long as it would adversely affect the
rate of economic growth and this would end up in equal
distribution of poverty rather than equal distribution of wealth.
21. Mutual compatibility/consistency among
objectives
08/03/2014
Subir Maitra/ATI-CSSC
iasstudymat.blogspot.in21
Economic growth and balanced regional
development: Balanced regional development would
require diversion of resources from relatively less
developed regions to backward regions. In the former
regions, generally, the developed infrastructure is
available which adds to the efficiency of the
resources. On the other hand, the same amount of
investment in backward regions with hardly any
infrastructural facilities would result in relatively lower
growth; thus, the balanced regional growth can be
had only at the cost of efficient utilization of
resources.
Economic growth and price stability: A gradually
rising price level generally results in rising profits, that
stimulate private investment. On the other hand,
stationary price level will have adverse effect on the
22. 08/03/2014Subir Maitra/ATI-CSSC iasstudymat.blogspot.in22
You may visit my blog for my earlier lectures
and study materials
iasstudymat.blogspot.in
You may also join FB Group ‘Economic and
Social Development in India’ created by me:
https://www.facebook.com/groups/economicands
ocialdevelopment/
You may also write to me at:
sm.ias.ati@gmail.com
Or call +919051484147
