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The ghost of financing gap : how the Harrod-Domar growth model still haunts development economics

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Author Info
Easterly, William

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Abstract

The Harrod-Domar growth model supposedly died long ago. But for more than 40 years, economists working on developing countries have applied -and still apply- the Harrod-Domar model to calculate short-run investment requirements for a target growth rate. They then calculate a financing gap between the required investment and available resources, and often fill the"financing gap"with foreign aid. The author traces the intellectual history of how a long-dead model came to influence today's aid allocation to developing countries. He asks whether the model's surprising afterlife is attributable to consistency with the 40 years of data that have accumulated during its use. The answer is"no."

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1807.

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Date of creation: 31 Aug 1997
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Handle: RePEc:wbk:wbrwps:1807

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Keywords: Economic Theory&Research; Environmental Economics&Policies; Payment Systems&Infrastructure; Decentralization; Public Health Promotion; Governance Indicators; Economic Theory&Research; Achieving Shared Growth; Environmental Economics&Policies; Economic Growth;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Easterly, William & Rebelo, Sérgio, 1994. "Fiscal Policy and Economic Growth: An Empirical Investigation," CEPR Discussion Papers 885, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Pritchett, Lant, 1996. "Mind your P's and Q's : the cost of public investment is not the value of public capital," Policy Research Working Paper Series 1660, The World Bank. [Downloadable!]
  3. Romer, Paul, 1993. "Idea gaps and object gaps in economic development," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 543-573, December. [Downloadable!] (restricted)
  4. Burnside, Craig & Dollar, David, 1997. "Aid, policies, and growth," Policy Research Working Paper Series 1777, The World Bank. [Downloadable!]
    Other versions:
  5. Svensson, Jakob, 1997. "When is foreign aid policy credible : aid dependence and conditionality," Policy Research Working Paper Series 1740, The World Bank. [Downloadable!]
  6. Boserup, Mogens, 1969. "Warning against Optimistic ICOR Statistics," Kyklos, Blackwell Publishing, vol. 22(4), pages 774-76.
  7. Sergio T. Rebelo, 1992. "Long Run Policy Analysis and Long Run Growth," NBER Working Papers 3325, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Svensson, Jakob, 1997. "When is Foreign Aid Policy Credible? - Aid Dependence and Conditionality," Seminar Papers 600, Stockholm University, Institute for International Economic Studies. [Downloadable!]
  9. Young, Alwyn, 1995. "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 641-80, August. [Downloadable!] (restricted)
  10. Schmidt-Hebbel, K. & Serven, L., 1997. "Saving Across the World: Puzzles and Policies," World Bank - Discussion Papers 354, World Bank.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Stephane Pallage & Michel Robe, 1998. "Foreign Aid and the Business Cycle," Cahiers de recherche CREFE / CREFE Working Papers 63, CREFE, Université du Québec à Montréal. [Downloadable!]
    Other versions:
  2. Reinikka, Ritva & Svensson, Jakob, 1999. "Confronting competition - investment response and constraints in Uganda," Policy Research Working Paper Series 2242, The World Bank. [Downloadable!]
  3. Gabriele Tondl, 1999. "What Determined the Uneven Growth of Europe´s Southern Regions? An Empirical Study with Panel Data," Working Papers geewp04, Vienna University of Economics and B.A. Research Group: Growth and Employment in Europe: Sustainability and Competitiveness. [Downloadable!]
  4. Ali Abdel Gadir Ali, . "Can the Sudan Reduce Poverty by Half by the Year 2015?," API-Working Paper Series 0304, Arab Planning Institute - Kuwait, Information Center. [Downloadable!]
  5. Tsikata, Tsidi, 1998. "Aid Effectiveness - A Survey of the Recent Empirical Literature," IMF Papers on Policy Analysis and Assessments 98/1, International Monetary Fund. [Downloadable!]
  6. Reinikka, Ritva & Svensson, Jakob, 1999. "How inadequate provision of public infrastructure and services affects private investment," Policy Research Working Paper Series 2262, The World Bank. [Downloadable!]
  7. Thilak Ranaweera, 2004. "Ghost of the financing gap: an overlooked aspect of the aid debate," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(4), pages 637-652. [Downloadable!]
  8. Artelaris, Panagiotis & Arvanitidis, Paschalis & Petrakos, George, 2007. "Explaining Knowledge-Based Economic Dynamism in a Global Scale," Papers DYNREG05, Economic and Social Research Institute (ESRI). [Downloadable!]
  9. Nicolas Ponty, 2005. "Un modèle MAcroDYNamique des économies des pays membres de l’UEMOA : MADYN," Documents de travail 118, Groupe d'Economie du Développement de l'Université Montesquieu Bordeaux IV. [Downloadable!]
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