IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/1807.html
   My bibliography  Save this paper

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

Author

Listed:
  • Easterly, William

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."

Suggested Citation

  • Easterly, William, 1997. "The ghost of financing gap : how the Harrod-Domar growth model still haunts development economics," Policy Research Working Paper Series 1807, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1807
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2000/02/24/000009265_3971110141350/Rendered/PDF/multi_page.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Romer, Paul, 1993. "Idea gaps and object gaps in economic development," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 543-573, December.
    2. Anonymous, 1955. "International Bank for Reconstruction and Development," International Organization, Cambridge University Press, vol. 9(4), pages 541-544, November.
    3. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June.
    4. 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.
    5. Easterly, William & Rebelo, Sergio, 1993. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December.
    6. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
    7. Svensson, Jakob, 2000. "When is foreign aid policy credible? Aid dependence and conditionality," Journal of Development Economics, Elsevier, vol. 61(1), pages 61-84, February.
    8. Anonymous, 1955. "International Bank for Reconstruction and Development," International Organization, Cambridge University Press, vol. 9(3), pages 421-425, August.
    9. Anonymous, 1955. "International Bank for Reconstruction and Development," International Organization, Cambridge University Press, vol. 9(1), pages 164-167, February.
    10. Schmidt-Hebbel, K. & Serven, L., 1997. "Saving Across the World: Puzzles and Policies," World Bank - Discussion Papers 354, World Bank.
    11. Boserup, Mogens, 1969. "Warning against Optimistic ICOR Statistics," Kyklos, Wiley Blackwell, vol. 22(4), pages 774-776.
    12. Anonymous, 1955. "International Bank for Reconstruction and Development," International Organization, Cambridge University Press, vol. 9(2), pages 272-274, May.
    13. Alwyn Young, 1995. "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 641-680.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. From 0.7% to IRPs
      by Matthew Dickert in Blogal Prosperity on 2011-05-19 01:01:27

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Brück, Tilman & Xu, Guo, 2012. "Who gives aid to whom and when? Aid accelerations, shocks and policies," European Journal of Political Economy, Elsevier, vol. 28(4), pages 593-606.
    2. Joan Carles Ferrer-Comalat & Salvador Linares-Mustarós & Ricard Rigall-Torrent, 2021. "Incorporating Fuzzy Logic in Harrod’s Economic Growth Model," Mathematics, MDPI, vol. 9(18), pages 1-20, September.
    3. Koopman, Eline & Wacker, Konstantin M., 2023. "Drivers of growth accelerations: What role for capital accumulation?," World Development, Elsevier, vol. 169(C).
    4. Reinikka, Ritva & Svensson, Jakob, 2002. "Coping with poor public capital," Journal of Development Economics, Elsevier, vol. 69(1), pages 51-69, October.
    5. Stéphane Pallage & Michel A. Robe, 2001. "Foreign Aid and the Business Cycle," Review of International Economics, Wiley Blackwell, vol. 9(4), pages 641-672, November.
    6. Blanco Cossio,Fernando Andres,Sachdeva,Niharika, 2021. "The Cyclicality of IFC Investments : To Be, or Not to Be, Procyclical," Policy Research Working Paper Series 9746, The World Bank.
    7. Edmore MAHEMBE & Nicholas M. ODHIAMBO, 2017. "On The Link Between Foreign Aid And Poverty Reduction In Developing Countries," Revista Galega de Economía, University of Santiago de Compostela. Faculty of Economics and Business., vol. 26(2), pages 113-128.
    8. Egor Kraev & Bishop Akolgo, 2005. "Assessing Modelling Approaches to the Distributional Effects of Macroeconomic Policy," Development Policy Review, Overseas Development Institute, vol. 23(3), pages 299-312, May.
    9. Surugiu Marius Razvan & Surugiu Camelia, 2016. "Growth, Trade, Investments and Expenditures: Analysis of the Nexus," EuroEconomica, Danubius University of Galati, issue 2(35), pages 7-16, November.
    10. 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 Business Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
    11. Hisham Mohamed Hassan Ali, 2012. "Cointegration Growth, Poverty and Inequality in Sudan," Economic Research Guardian, Weissberg Publishing, vol. 2(1), pages 70-98, May.
    12. 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.
    13. 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.
    14. World Bank, 2002. "The Republic of Yemen - Economic Growth : Sources, Constraints and Potentials," World Bank Publications - Reports 15383, The World Bank Group.
    15. Doina Dragoi, 2019. "Harrod–Domar Economic Growth Model In Classical And Neoclassical Theory Name And Surname," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 6, pages 281-287, December.
    16. Stephen A.O`Connell and Charles C.Soludo, 1998. "Aid intensity in Africa," Economics Series Working Papers WPS/1999-03, University of Oxford, Department of Economics.
    17. Jean-David Naudet & Denis Cogneau & Lisa Chauvet, 2008. "Sélectivité et égalité des chances dans l’allocation de l’aide internationale. Une analyse de la dernière décennie," Économie et Prévision, Programme National Persée, vol. 186(5), pages 23-38.
    18. Ali Abdel Gadir Ali, "undated". "Can the Sudan Reduce Poverty by Half by the Year 2015?," API-Working Paper Series 0304, Arab Planning Institute - Kuwait, Information Center.
    19. Ulrich Fritsche, 1999. "Konzeptionelle Schwächen von IWF-Stabilisierungsprogrammen im Kontext der Asienkrise," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 68(1), pages 110-117.
    20. Volkhart Vincentz, 2002. "Entwicklungen und Tendenzen der Finanzsysteme in Osteuropa," Working Papers 237, Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies).
    21. Reinikka, Ritva & Svensson, Jakob, 1999. "Confronting competition - investment response and constraints in Uganda," Policy Research Working Paper Series 2242, The World Bank.
    22. José Reyes Bernal-Bellón, 2011. "Reflexiones acerca de los desarrollos recientes del modelo de crecimiento de Harrod," Revista CIFE, Universidad Santo Tomás, June.
    23. Siham MATALLAH & Lahouari BENLAHCENE, 2021. "Public service delivery dilemma and economic growth challenges in the MENA Region," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(629), W), pages 31-50, Winter.
    24. Artelaris, Panagiotis & Arvanitidis, Paschalis & Petrakos, George, 2007. "Explaining Knowledge-Based Economic Dynamism in a Global Scale," Papers DYNREG05, Economic and Social Research Institute (ESRI).
    25. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ross, E.B., 2003. "Modernisation, clearance and the continuum of violence in Colombia," ISS Working Papers - General Series 19142, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    2. Adegboye, Rufus Oladokun, 1964. "Improving land use in Nigeria through removing defects in land inheritance," ISU General Staff Papers 196401010800003725, Iowa State University, Department of Economics.
    3. Brown, Lester R., 1963. "Agricultural Diversification and Economic Development in Thailand: A Case Study," Foreign Agricultural Economic Report (FAER) 143855, United States Department of Agriculture, Economic Research Service.
    4. Peter Bauer, 1998. "B. R. Shenoy: Stature and Impact," Cato Journal, Cato Journal, Cato Institute, vol. 18(1), pages 1-10, Spring/Su.
    5. Mihai Niţoi & Dorina Clichici & Simona Moagăr-Poladian, 2021. "Foreign Banks in Central and Eastern Europe: The Good, the Bad and the Ugly," Prague Economic Papers, Prague University of Economics and Business, vol. 2021(5), pages 596-612.
    6. W. G. Huff, 2003. "Currency Boards and Chinese Banking Development in pre-World War II Southeast Asia: Malaya and the Philippines," Working Papers 2003_2, Business School - Economics, University of Glasgow.
    7. Mihai Niţoi & Dorina Clichici & Simona Moagăr-Poladian, . "Foreign Banks in Central and Eastern Europe: The Good, the Bad and the Ugly," Prague Economic Papers, Prague University of Economics and Business, vol. 0.
    8. Mehmet Osman ÇATI, 2016. "Economic Development and Foreign Policy, The Case of Syria 1949-1954," Sosyoekonomi Journal, Sosyoekonomi Society, issue 24(27).
    9. Morgan, Mary S., 2008. "‘On a mission' with mutable mobiles," Economic History Working Papers 22500, London School of Economics and Political Science, Department of Economic History.
    10. Carl K. Eicher, 1967. "The Dynamics of Long-Term Agricultural Development in Nigeria," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 49(5), pages 1158-1170.
    11. Cem Ertur & Wilfried Koch, 2006. "The Role of Human Capital and Technological Interdependence in Growth and Convergence Processes: International Evidence," DEGIT Conference Papers c011_029, DEGIT, Dynamics, Economic Growth, and International Trade.
    12. Teresa SEQUEIRA & Francisco DINIZ, 2014. "Planning Beyond Infrastructures: The Third Sector In Douro And Alto Tras-Os-Montes," Regional Science Inquiry, Hellenic Association of Regional Scientists, vol. 0(1), pages 43-57, June.
    13. Fiseha Gebregziabher & Miguel Niño-Zarazúa, 2014. "Social Spending and Aggregate Welfare in Developing and Transition Economies," WIDER Working Paper Series wp-2014-082, World Institute for Development Economic Research (UNU-WIDER).
    14. Lai, Mingyong & Peng, Shuijun & BAO, Qun, 2006. "Technology spillovers, absorptive capacity and economic growth," China Economic Review, Elsevier, vol. 17(3), pages 300-320.
    15. Capolupo, Rosa, 2009. "The New Growth Theories and Their Empirics after Twenty Years," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-72.
    16. Rosa Capolupo, 2005. "THE NEW GROWTH THEORIES AND THEIR EMPIRICS, Discussion Paper in Economics, University of Glasgow, N. 2005-04 (http://www.gla.ac.uk/Acad/Economics," GE, Growth, Math methods 0506003, University Library of Munich, Germany.
    17. Gebregziabher, Fiseha & Niño-Zarazúa, Miguel, 2014. "Social spending and aggregate welfare in developing and transition economies," WIDER Working Paper Series 082, World Institute for Development Economic Research (UNU-WIDER).
    18. Norman Gemmell, 2001. "Fiscal Policy in a Growth Framework," WIDER Working Paper Series DP2001-84, World Institute for Development Economic Research (UNU-WIDER).
    19. William Easterly & Ross Levine, 2002. "It´s Not Factor Accumulation: Stylized Facts and Growth Models," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.),Economic Growth: Sources, Trends, and Cycles, edition 1, volume 6, chapter 3, pages 061-114, Central Bank of Chile.
    20. Szilágyi, Katalin & Major, Klára, 2007. "Kormányzati beruházás kis, nyitott gazdaságban [Government investment in a small open economy]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 29-48.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1807. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.