UNIVERSITY OF SOUTHERN MINDANAO

Linear Stages of
Growth Model
(Harrod-Domar Model)
Catherine Mae Dianne T. Cacundangan
Bachelor of Science in Management Accounting
ECON 412 –Development Economics
2nd semester, 2022-2023
 Harrod-Domar Model
Is an economic model that explains the
relationship between economic growth,
investment, and savings. The model was first
proposed by economist Roy Harrod in 1939 and
later developed by Evsey Domar in 1946.
According to the Harrod-Domar Model, economic
growth depends on the level of savings and
investment in an economy. Specifically, the model
argues that economic growth can be achieved by
maintaining a constant ratio between savings and
investment, known as the capital-output ratio.
 Harrod-Domar Model
The model assumes that there are two
types of economic activities:
consumption and investment.
Consumption refers to the purchase of
goods and services for immediate use.
Investment refers to the creation of
new productive capacity, such as
building factories or infrastructure
 Examples
Harrod-Domar model and its application to the
Philippine economy:
According to the article entitled "Philippines to boost investments
to spur economic growth", the Philippine government plans to increase
investments as a means of promoting economic growth, with a goal of
increasing investment to 30% of GDP by 2022. The government aims to
improve the investment climate, promote public-private partnerships,
and increase infrastructure spending to achieve this goal. The article
cites the Harrod-Domar model as a useful theoretical framework for
understanding the relationship between investment and economic
growth, but also notes that other factors such as technology and
human capital are important for economic development.
 Example
Here are some salient points from the article:
 The Philippine government plans to boost investments to spur
economic growth.
The government aims to increase investment to 30% of GDP by
2022, up from the current level of around 20%.
 The government plans to achieve this goal by improving the
investment climate, promoting public-private partnerships, and
increasing infrastructure spending.
 The Harrod-Domar model is cited as a useful theoretical
framework for understanding the relationship between
investment and economic growth.
 Other factors such as technology and human capital are noted
as important for economic development.
 Reference
Reuters. (2021, May 7). Philippines to boost investments to
spur economic growth. Retrieved from
https://www.reuters.com/world/asia-pacific/philippines-
boost-investments-spur-economic-growth-2021-05-07/