The Harrod-Domar model theorizes that a country's economic growth rate is defined by its savings level and capital output ratio. It was developed in the 1930s-40s by British economist Roy Harrod and Russian economist Evsey Domar. The model shows that increased savings leads to increased investment, production, and capital, fueling economic growth. However, it makes unrealistic assumptions and does not account for factors like development versus just growth. The Solow-Swan model later improved on it by including capital intensity variations.

1. HARROD-DOMAR MODEL
Megan Kedzlie

2. MODEL DEVELOPMENT:
SIR ROY HARROD
EVSEY DOMAR
• British economist
• Russian/American
• Biographer of John
economist
• Developed Domar Model
in 1946 at Harvard
• Became professor at MIT
and John Hopkins
Maynard Keynes
• Wrote first textbook
International Economics
• Developed the Harrod
Model in 1939 at Christ
Church

3. THE MODEL
• The
Harrod-Domar
model theorizes that
the rate of economic
growth in a country
is defined by the
level of savings and
the capital output
ratio.
SIMPLY:
SAVINGS (S)
------------------RATE OF
= CAPITAL
GROWTH (Y)
OUTPUT (k)
RATIO
capital output ratio: the amount of capital needed to produce one unit
of output .

4. SYSTEM:
increase
d savings
increase
d
revenue
increased
production
increased
investment
increase
d capital
If there is a lot of
savings in a country, it
will generate capital for
the firms tomorrow and
invest. This capital will
allow for economic
growth, through the
increased production
and provision of goods
and services.

5. CRITICISMS
• Assumptions:
• Growth is all that is needed to maintain complete employment
• Price of labor and capital is fixed and used equally
• Growth vs. Development
• This model claims that economic growth is the same as economic
develpoment, whereas most would suggest that growth is only a
subset to the economic development of a nation
• Policy of Savings
• The model makes it seem that it’s easy to implement legislation
that would increase the amount that citizens saved, whereas in
reality its hard to define and push people to save always.

6. SOLOW-SWAN MODEL
With the many issues that the model has
concerning its accuracy, the Harrod-Domar
Model was developed into the Solow-Swan
model, which accounts also for the different
intensities of capital invested which was
what could bring the nation’s economy to a
steady state.