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Peter Marshall Development Theories 1) Describe the Harrod-Domar model of growth The model was developed independently by RF Harrod and ED Domar in the 1930's. The main principles of the model were that the rate of an economies growth depends upon the level of saving and the productivity of investment i.e. the capital output ratio. For example, if £12 worth of capital equipment produces ach £1 of annual output, a capital-output ratio of 12 to 1 exits. Using the model it is possible to describe reasons for economic growth. Economic growth depends upon the amount of labour and capital. As LDC's often have an abundant supply of labour it is the lack of capital that stifles their growth and development. More physical capital therefore generates growth. Therefore net investment leads to more capital accumulation, which generates higher output and therefore income. This higher income will therefore in turn allow higher saving levels. The key to economic...

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