Compare and contrast Harrod growth model and Domar growth model . What are the similarities?
Both the Harrod growth model and the Domar growth model are economic theories that seek to explain the long-term growth and fluctuations in an economy. However, they approach the issue from slightly different perspectives.
The key difference between the two models lies in how they explain the relationship between savings and investment in an economy. The Harrod growth model, developed by Sir Roy Harrod, focuses on the idea that economic growth is determined by the rate of growth in investment. According to Harrod, the level of investment needed to maintain full employment and steady growth in an economy can differ from the level of saving, leading to instability and fluctuations in the economy in the form of booms and busts.
On the other hand, the Domar growth model, developed by Evsey Domar, emphasizes the importance of the saving rate in determining the long-run growth rate of an economy. Domar's model suggests that the rate of economic growth is proportional to the saving rate in an economy, as higher levels of saving lead to increased investment, which in turn drives economic growth.
Despite these differences, there are also some similarities between the two models. Both the Harrod and Domar growth models highlight the importance of investment in driving economic growth. They both also recognize the potential for instability and fluctuations in an economy, as well as the need for government intervention to help stabilize the economy and promote long-term growth.
In summary, while the Harrod growth model focuses on the relationship between investment and growth, and the Domar growth model emphasizes the importance of saving in driving economic growth, both theories share a common goal of explaining the factors that influence long-term economic growth and stability.