The ghost of financing gap: Testing the growth model used in the international financial institutions

William Easterly

    Research output: Contribution to journalArticle

    Abstract

    The Harrod-Domar growth model supposedly died long ago. Still today, economists in the international financial institutions (IFIs) 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 financing gap model has two simple predictions: (1) aid will go into investment one for one, and (2) there will be a fixed linear relationship between growth and investment in the short run. The data soundly reject these two predictions of the financing gap model.

    Original languageEnglish (US)
    Pages (from-to)423-438
    Number of pages16
    JournalJournal of Development Economics
    Volume60
    Issue number2
    DOIs
    StatePublished - Dec 1999

    Fingerprint

    aid
    prediction
    economist
    fill
    financing
    International financial institutions
    Financing
    Growth model
    Testing
    resource
    resources
    Prediction
    Short-run
    Resources
    Economists
    Foreign aid

    Keywords

    • Economic development
    • Economic growth
    • Foreign aid
    • Growth models
    • Investment

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    The ghost of financing gap : Testing the growth model used in the international financial institutions. / Easterly, William.

    In: Journal of Development Economics, Vol. 60, No. 2, 12.1999, p. 423-438.

    Research output: Contribution to journalArticle

    @article{c7307f69da504d00b6a69e82e92ecdd7,
    title = "The ghost of financing gap: Testing the growth model used in the international financial institutions",
    abstract = "The Harrod-Domar growth model supposedly died long ago. Still today, economists in the international financial institutions (IFIs) 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 financing gap model has two simple predictions: (1) aid will go into investment one for one, and (2) there will be a fixed linear relationship between growth and investment in the short run. The data soundly reject these two predictions of the financing gap model.",
    keywords = "Economic development, Economic growth, Foreign aid, Growth models, Investment",
    author = "William Easterly",
    year = "1999",
    month = "12",
    doi = "10.1016/S0304-3878(99)00047-4",
    language = "English (US)",
    volume = "60",
    pages = "423--438",
    journal = "Journal of Development of Economics",
    issn = "0304-3878",
    publisher = "Elsevier",
    number = "2",

    }

    TY - JOUR

    T1 - The ghost of financing gap

    T2 - Testing the growth model used in the international financial institutions

    AU - Easterly, William

    PY - 1999/12

    Y1 - 1999/12

    N2 - The Harrod-Domar growth model supposedly died long ago. Still today, economists in the international financial institutions (IFIs) 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 financing gap model has two simple predictions: (1) aid will go into investment one for one, and (2) there will be a fixed linear relationship between growth and investment in the short run. The data soundly reject these two predictions of the financing gap model.

    AB - The Harrod-Domar growth model supposedly died long ago. Still today, economists in the international financial institutions (IFIs) 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 financing gap model has two simple predictions: (1) aid will go into investment one for one, and (2) there will be a fixed linear relationship between growth and investment in the short run. The data soundly reject these two predictions of the financing gap model.

    KW - Economic development

    KW - Economic growth

    KW - Foreign aid

    KW - Growth models

    KW - Investment

    UR - http://www.scopus.com/inward/record.url?scp=0033432910&partnerID=8YFLogxK

    UR - http://www.scopus.com/inward/citedby.url?scp=0033432910&partnerID=8YFLogxK

    U2 - 10.1016/S0304-3878(99)00047-4

    DO - 10.1016/S0304-3878(99)00047-4

    M3 - Article

    VL - 60

    SP - 423

    EP - 438

    JO - Journal of Development of Economics

    JF - Journal of Development of Economics

    SN - 0304-3878

    IS - 2

    ER -