Courses : Intermediate Macroeconomics Lecturer : Frischa Adellia Semester : 4th Semester, 2022/2023 Sesion The Harrod-Domar Growth Model The Harrod-Domar growth model is one model that explains how investment affects a country's economic growth. This model was first introduced by Roy F. Harrod in 1939 and then further developed by Evsey Domar in 1946. In general, the Harrod-Domar model says that a country's economic growth is highly dependent on the level of investment in the economy. In this model, investment is considered as a driving force for economic growth, because investment can increase production capacity and promote economic growth. The Harrod-Domar model uses two main variables, namely the level of investment (I) and capital efficiency (v), which is the ratio between national output (Y) and capital used (K). By using these two variables, this model can explain the relationship between investment and a country's economic growth. Mathematically, the Harrod-Domar model can be formulated as follows: G = I/v Where G is the economic growth rate, I is the investment level, and v is capital efficiency. In this formula, G will increase as the level of investment (I) or capital efficiency (v) increases. However, this model has certain assumptions, such as the assumption that there is an equilibrium between the level of investment and the level of saving, and the assumption that there is full flexibility in the factors of production, such as labor and capital. Therefore, this model is not always accurate in describing the real conditions in the field. Nonetheless, the Harrod-Domar model is still often used by economists to explain how investment can affect a country's economic growth and to formulate appropriate economic policies to increase that economic growth. In addition, the Harrod-Domar model also suggests that there is a limit to economic growth which is referred to as the Harrod limit or Dominant limit. This Harrod limit or Dominant limit is formed because excessive levels of investment and economic growth can result in inflation or economic imbalances that can disrupt long-term economic growth. To overcome this problem, the Harrod-Domar model proposes that there are two economic policy approaches that can be taken by a country to increase economic growth. First, the state can increase the level of investment by increasing saving and reducing consumption. Second, the state can increase the efficiency of capital use through technological modernization and infrastructure development. Although the Harrod-Domar model has the disadvantage of ignoring other factors that affect economic growth, it makes an important contribution to the understanding of the relationship between investment and economic growth. This model also provides a theoretical foundation for economic development and economic policy planning in developing countries. In practice, the Harrod-Domar model does not always apply to all countries and economic situations, especially for countries that are experiencing an economic crisis or stagnant economic growth. Some critics also state that this model does not take into account technological changes and scientific advances which also play an important role in economic growth. Nonetheless, the Harrod-Domar model remains one of the most important theoretical models in understanding the relationship between investment and economic growth, and makes a major contribution to the development of modern economic theory. This model has provided inspiration for more complex and accurate economic growth models which have been developed subsequently, such as the Solow-Swan model and the endogenous model. The Solow-Swan model and the endogenous model are developments from the HarrodDomar model which are more complex and accurate in taking into account the factors that affect economic growth. The Solow-Swan model suggests that the factors of production, namely capital, labor, and technology, play an important role in long-term economic growth. This model also takes into account the limited natural resources that can limit a country's economic growth. Meanwhile, the endogenous model suggests that innovation and technological development can be a determining factor in long-term economic growth. This model also takes into account the existence of human factors, namely the level of education and skills of workers, as well as economic institutions and policies that can affect economic efficiency and productivity. Both models provide further development in the understanding of the relationship between investment and economic growth, as well as other factors that influence long-term economic growth. Although the Harrod-Domar model has limitations, its contribution and influence in the development of modern economic theory cannot be denied.