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

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  • 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
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    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. 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.
    3. Svensson, Jakob, 2000. "When is foreign aid policy credible? Aid dependence and conditionality," Journal of Development Economics, Elsevier, pages 61-84.
    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. Boserup, Mogens, 1969. "Warning against Optimistic ICOR Statistics," Kyklos, Wiley Blackwell, vol. 22(4), pages 774-776.
    8. 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.
    9. Schmidt-Hebbel, K. & Serven, L., 1997. "Saving Across the World: Puzzles and Policies," World Bank - Discussion Papers 354, World Bank.
    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

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    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. Pallage, Stephane & Robe, Michel A, 2001. "Foreign Aid and the Business Cycle," Review of International Economics, Wiley Blackwell, vol. 9(4), pages 641-672, November.
    3. repec:sdo:regaec:v:26:y:2017:i:2_9 is not listed on IDEAS
    4. 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.
    5. 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.
    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.
    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.
    8. World Bank, 2002. "The Republic of Yemen - Economic Growth : Sources, Constraints and Potentials," World Bank Other Operational Studies 15383, The World Bank.
    9. 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.
    10. 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.
    11. 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.
    12. Reinikka, Ritva & Svensson, Jakob, 1999. "Confronting competition - investment response and constraints in Uganda," Policy Research Working Paper Series 2242, The World Bank.
    13. José Reyes Bernal-Bellón, 2011. "Reflexiones acerca de los desarrollos recientes del modelo de crecimiento de Harrod," REVISTA CIFE, UNIVERSIDAD SANTO TOMÁS, June.
    14. 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.

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