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. This diminishes the demand and consequently the price for the local currency depreciation.

On this ground, the above condition is hard to fulfill empirically. Such a model can remedy most of the shortcomings inherent in the past modeling steout in this area and also accomodate a wide range of important features of reality–like nonlinearities of functions and different types of substitution possibilities. Focus on your client’s books.

However, one must mention one disturbing feature of this model: Optimizing models–to some extent natural complements of consistency models–on the other hand, seek to provide the ‘best’ pattern of final demands and resource allocation from among the set of possibilities–the ‘best’ being defined in the sense of cheneryy some welfare function.

In the present section we shall focus our atten- tion cuenery the multi-sector planning models which tend to highlight the interactions between growth and external resource inflow. What are the characteristics of an economic model? In the third variant, again there is no savings con- straint but aid inflows are specified for each period with no in- tertemporal transfers permitted. As a first approximation, they postulate S —s. In other words, it can be stated that foreign resource re- quirements will decline with time if the product of the target rate of growth r and the capital-output ratio k is less than the marginal cheneery of savings s’.

Two-Gap Models of Foreign Aid: A Survey | M.G. Quibria –

So far as the models are concerned, they are all wtrout and they fall into two broad categories- consistency models of the input- output variety and optimizing models of the programming cheery. 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.


Y t 36 or expressed alternatively, W. In what ways would countries fill this gap between savings and investments? Cohen,” Economic Journal, March76, Remember me on this computer.

fhenery Except for a very few economists, almost everyone agreed until the neoliberal fad took over that cjenery has to be some role for the state in kickstarting the process of development. This domination validates a priori belief that manufacturing goods and exports is the best strategy for development of exports of a country. Let us turn briefly to the three phases of growth. In the case where there is the flexibility of choosing the time profile of aid, it is found that optimality requires more aid in the initial years and repayment of it in the later years by export promotion and import substitution.

The feedback you provide will help us show you more relevant content in the future. Savings gap is the difference between the amount of money, chenerg people hold in their financial institutions e.

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The Savings-Investment Gap Approach: What are the development theories in economics? Another interesting feature of this model is that it incorporates the rate of 4 The Fei-Paauw model and Chenery-Strout models are very similar in spirit. From the above discussion, it is evident that foreign capital in- flows have a different impact on growth depending on whether the savings constraint or the foreign-exchange constraint is binding. Tendulkar presents a static, multi-sector optimizing model for India.

The objective function of the model is the sum of the following terms: The out- come of the research has been what has come to be known in the development parlor as the two-gap models. Both types of models are highly useful and can provide valuable in- sights; and they have been profitably utilized to investigate the pro- blem of interactions between domestic and foreign resources–in the empirical context of different economies.


Here one should note that though the assumption of a constant marginal im- port may be valid as a first approximation, the assumption of a constant marginal export is hard to maintain in reality, as one ex- pects 19966 value of this parameter to fall with income.

What are the differences between business model and economic model?

Reassessing Export Diversification Strategies: The results of this study seem to be in conformity with other models. The research assistance of Samia Choudhury and Akhtar Mahmood is gratefully acknowledged.

In phase III, as is mentioned before, a shortage of foreign ex- change becomes the constraining factor. In his ‘closed loop’ version, Tendulkar adds a sav- strokt constraint along with the foreign exchange one.

In its simplest form, the savings-investment gap–of which one early, systematic exposi- tion can be found in Rosenstein-Rodan-states that the foreign resource requirements of a country to sustain a target rate of growth sould be measured by the difference between domestic sav- ings and the rate of investment necessitated by the growth-goal of the society. Further note that k. The two-gap cnenery posits that developing economies face two gaps in their economy which they have to fill.

Foreign Exchange gap occurs as a result of difference in the total value of exports and imports typically more imports than exports. Related Questions What are the variables of Economic development? However, for a good summary discus- sion, see Taylor or Westphal.

Their objec- FOREIGN AID 81 tive had been to project balance of payments under alternative strategies of growth-defined with respect to aggregate growth targets and import substitution targets. Fei and Paauw analyze the relationship bet- ween external resources and the mobilization of domestic savings. What is the difference between business development and economic development?