Application of the Harrod-Domar model in planning the economic growth of less developed countries

Abstract

In this paper, special attention will be paid to the theoretical and practical application of the Harrod-Domar model of economic growth, the mainstream of economic development analysis. The reason for this is in the fact that this model is still relevant to this day, since it promotes investments as primary component of economic growth. Harrod Domar's model is often used for planning economic development, as well as understanding development difficulties, especially in underdeveloped countries.The use of this model is explained by economists from leading international financial institutions. Even today they often use this model in order to calculate the projected GDP level of a country in the fastest manner, based on projected investments, and on that basis to determine its possibilities for external borrowing. Most of underdeveloped countries, due to a lack of domestic resources for investments, opt for borrowing. This paper analyzes the practical application of the Harrod-Domar model in planning economic growth in certain countries. Positive and negative experiences of certain countries in the application of the model are reviewed, what should help the Republic of Srpska to establish its own development model. The intention is to determine how to use the Harrod- Domar model to calculate the required investments and achieve a certain rate of economic growth in the Republic of Srpska.