lower than the Chenery–Watanabe average (Chenery and Watanabe, ). .. McKinnon (), Chenery and Strout (), Findlay (), and others. Article in American Economic Review 56 · September with Reads . As submitted by Chenery and Strout (), foreign exchange. Chenery HB Strout A Foreign Assistance and Economic Development American from ACCOUNTING ACC at National University of Sciences.

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The policy implication that follows from the above is that a larger inflow of external resources in the early years decreases the total volume of aid needed to sustain the postulated growth targets.

It shows what Fei-Paauw call the favorable case. The objective function is to maximize the increment in the first year consumption level, the initial year ag- gregate consumption level as well as the growth rate of increments in consumption in following years being defined exogenously. In different phases of develop- ment, foreign aid can help relax these dominant constraints by augmenting the supply of skills, the supply of investible resources and the supply of imported commodities and services.

Others argued that these countries need to trade in order to gain trade surpluses, which could then be used to fill the gap.

What are the development theories in economics? In this study, the objective is to maximize the terminal year consumption subject to constraints upon the availability of primary resources.

The results are that the export portfolios comprised of manufactured products have a superior performance than export portfolios comprised of non-manufactured products. Secondly, by introducing savings constraints along with the foreign-exchange constraints, he finds that the marginal productivity of aid or its shadow price is higher if the foreign-exchange constraints are bin- ding rather than the savings constraints.

One important feature of this model is that it allows the total amount and the time pattern of resource inflow to be varied within limits. If the gap is reduced it becomes easier for the economics to reach the stage of take off as postulated by Rostow in his theory, Stages of economic development. Y with all savings being invested.


Next, turning to the multi-sector models, one can observe that they are rich in empirical content, and eschew the prdblems of ag- gregation bias as discernible in the aggregative models of Section II.

They postulate that, as has been mentioned before, per capita savings is a constant fraction u, of the increment in per capita income. The objective function of the model is the sum of the following terms: In order for F t to become zero, the follow- ing must hold: Here we intend to point briefly to some major shortcomings–as we perceive them–of these works.

In the first variant, they assume no savings constraint; the total discounted sum of aid is fixed but the profile of aid inflow is flexible and subject to choice. Log In Sign Up. Skip to main content.

Like Brunohe varies the amount of foreign resource in- flow and seeks to trace their impact on consumption. It may be mentioned that the shadow price is measured here by the increase in consumption due to an additional inflow of foreign resource. A closed loop variant yields a higher shadow price at each level of foreign resource inflow, but the differences seem to narrow with increasing inflow of foreign resource.

Still have a question? Get insurance in as little as 5 minutes and go back to focusing on your client’s accounting books. Multi-Sector Models The preceding section was devoted to a discussion of ag- gregative models.

You dismissed this ad. Leaving a developing country to the free market would only mean that it would get locked in to the agricultural sector and its manufacturing sector would never grow, thereby ruling out a structural transformation in the nature of the economy. Ranis,”Foreign Assistance and Economic De- velopment: This is the unfavorable case. Gap between domestic savings and investmentwhere domestic savings are inadequate to support the level of growth.

Let us turn briefly to the three phases of growth. The differences steout the empirical results of hcenery two models can of course be traced to the differences in their formulations– different, though related, ways of conceptualizing the problem. What is the goal of economic development? The optimal time pattern of aid inflow seems to form a dome-shaped curve–first increasing, then decreasing finally reducing itself to zero. Not surprisingly, as the relative weight of external resource costs is increased, more domestic savings and less foreign capital are used to achieve the given target rates–implying greater opportunity costs of substitution of foreign resources by domestic resources.


Reassessing Export Diversification Strategies: National income accounting theory suggests that these gaps are not independent.

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Remember me on this computer. The results of this study seem to be in conformity with ajd models. This model is an extension of Harrod Domar Model. Savings gap is the difference between the amount qnd money, which people hold in their financial institutions e. This assumption may be valid for a developed country, but not quite so in the context of a LDC–because the very purpose of development is to bring about structural change.

Section III adds some concluding remarks, indicating briefly the principal shortcomings of the past research efforts discussed in the preceding sections.

What is the two – gap model in development economics? – Quora

Related Questions What is a two-gap model of economic development? Y t 36 or expressed alternatively, W.

Some argued that developing countries require aid from developed countries. Case I is portrayed in Figure 1 a. The way they pose the problem is as follows: In his’open loop’ version, he takes the supply of foreign exchange as the only limiting factor.

There was a lot of debate among economists here. Further, from the above eqs. Two-gap model is an extention of harrod-domar growth model and argues that development of less developed countries is constrained due to presence of two gaps: It was to the credit of Chenery and Strout to combine these three basic approaches to foreign aid into a comprehensive model.

In that sense only, the Bergsman-Manne model remains an ‘almost consistent’ model. The feedback you provide chenedy help us show you more relevant content in the future.

The objective function of this study consists of two com- ponents: