Page 35 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.76, # 2, 2019, pp. 31-45

considered to be one of the factors that hampers the implementation of the Domar-
Horrod model. For this reason, the Harrod-Domar model is widely used in the
analysis of short-term economic growth. Domar model, which is considered as a
simple Keynesian model of economic growth, is as follows:

ΔREAL_GDP = σ ∗ (1)
REAL_GDP s t−1

In this formula, ΔREAL_GDP is economic growth in period t, σ is a value of
REAL_GDP s t−1
productivity of capital and refers to a collection norm. ΔREAL_GDP is the growth

t
rate of real GDP in period t and REAL_GDP −1 is the aggregation of real GDP in
period (t-1).

As we can see, the productivity of capital and collection norm are the main
parameters of the model. During the experimental assessment, they are placed in
the following equations:

REAL_SAVING = ∗ REAL_GDP (2)

ΔREAL_GDP = σ ( - −1 )= σ * REAL_INVEST (3)

t

Here ΔREAL_GDP is the growth in period t. REAL_INVEST is investment in main
t

capital and REAL_GDP −1 the gross domestic product in period (t-1).
REAL_SAVING is the total of aggregation with real prices; and −1 represent

t
the amount of capital in t and (t-1) periods and REAL INVEST is the real investment

in period t.

The main result of the model is that production, investment, and capital growth rate
are equal to each other in the case of dynamic balanced economic growth, which
means:

ΔREAL_GDP t = ∆REAL INVEST = ΔK t (4)
REAL_GDP −1 REAL INVEST −1 −1

If we consider technical advancements in accordance with the Domar model,
dynamic balance is the main feature of economic growth.
We can write economic growth in Harrod model as the following.

REAL_GDP −REAL_GDP −1
= (5)
REAL_GDP −1 −
Here, − is an accelerator. We can determine the accelerator by the following
equation.

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